Here's Why Chemlite Innovation Berhad (KLSE:CLITE) Has A Meaningful Debt Burden

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Chemlite Innovation Berhad (KLSE:CLITE) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Chemlite Innovation Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Chemlite Innovation Berhad had RM7.71m of debt in September 2025, down from RM13.0m, one year before. But on the other hand it also has RM12.0m in cash, leading to a RM4.27m net cash position.

A Look At Chemlite Innovation Berhad's Liabilities

We can see from the most recent balance sheet that Chemlite Innovation Berhad had liabilities of RM4.81m falling due within a year, and liabilities of RM10.4m due beyond that. On the other hand, it had cash of RM12.0m and RM14.1m worth of receivables due within a year. So it actually has RM10.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Chemlite Innovation Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Chemlite Innovation Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Chemlite Innovation Berhad

Shareholders should be aware that Chemlite Innovation Berhad's EBIT was down 65% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Chemlite Innovation Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Chemlite Innovation Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Chemlite Innovation Berhad recorded free cash flow of 24% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Chemlite Innovation Berhad has net cash of RM4.27m, as well as more liquid assets than liabilities. So while Chemlite Innovation Berhad does not have a great balance sheet, it's certainly not too bad. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Chemlite Innovation Berhad you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.