Here's Why Cahya Mata Sarawak Berhad (KLSE:CMSB) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Cahya Mata Sarawak Berhad (KLSE:CMSB) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Cahya Mata Sarawak Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Cahya Mata Sarawak Berhad had RM212.8m of debt in December 2024, down from RM670.4m, one year before. However, it does have RM647.5m in cash offsetting this, leading to net cash of RM434.7m.

A Look At Cahya Mata Sarawak Berhad's Liabilities

According to the last reported balance sheet, Cahya Mata Sarawak Berhad had liabilities of RM713.4m due within 12 months, and liabilities of RM201.5m due beyond 12 months. On the other hand, it had cash of RM647.5m and RM308.7m worth of receivables due within a year. So it actually has RM41.3m more liquid assets than total liabilities.

This surplus suggests that Cahya Mata Sarawak Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Cahya Mata Sarawak Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Cahya Mata Sarawak Berhad

Pleasingly, Cahya Mata Sarawak Berhad is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 16,748% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Cahya Mata Sarawak Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Cahya Mata Sarawak 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. Over the last three years, Cahya Mata Sarawak Berhad saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cahya Mata Sarawak Berhad has RM434.7m in net cash and a decent-looking balance sheet. And we liked the look of last year's 16,748% year-on-year EBIT growth. So we are not troubled with Cahya Mata Sarawak Berhad's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Cahya Mata Sarawak Berhad is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.