Is Coraza Integrated Technology Berhad (KLSE:CORAZA) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Coraza Integrated Technology Berhad (KLSE:CORAZA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Coraza Integrated Technology Berhad

What Is Coraza Integrated Technology Berhad's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Coraza Integrated Technology Berhad had debt of RM29.6m, up from RM7.49m in one year. However, it does have RM49.5m in cash offsetting this, leading to net cash of RM20.0m.

How Healthy Is Coraza Integrated Technology Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Coraza Integrated Technology Berhad had liabilities of RM31.0m due within 12 months and liabilities of RM18.9m due beyond that. Offsetting these obligations, it had cash of RM49.5m as well as receivables valued at RM32.7m due within 12 months. So it actually has RM32.4m more liquid assets than total liabilities.

This surplus suggests that Coraza Integrated Technology Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Coraza Integrated Technology Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Coraza Integrated Technology Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Coraza Integrated Technology Berhad had a loss before interest and tax, and actually shrunk its revenue by 12%, to RM89m. That's not what we would hope to see.

So How Risky Is Coraza Integrated Technology Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Coraza Integrated Technology Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM30m of cash and made a loss of RM5.2m. Given it only has net cash of RM20.0m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 2 warning signs for Coraza Integrated Technology Berhad you should be aware of, and 1 of them is potentially serious.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.