Is D'nonce Technology Bhd (KLSE:DNONCE) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that D'nonce Technology Bhd. (KLSE:DNONCE) does use debt in its business. But the more important question is: how much risk is that debt creating?

Our free stock report includes 3 warning signs investors should be aware of before investing in D'nonce Technology Bhd. Read for free now.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is D'nonce Technology Bhd's Net Debt?

The chart below, which you can click on for greater detail, shows that D'nonce Technology Bhd had RM55.8m in debt in December 2024; about the same as the year before. On the flip side, it has RM55.4m in cash leading to net debt of about RM371.0k.

A Look At D'nonce Technology Bhd's Liabilities

We can see from the most recent balance sheet that D'nonce Technology Bhd had liabilities of RM50.9m falling due within a year, and liabilities of RM54.3m due beyond that. On the other hand, it had cash of RM55.4m and RM50.5m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This surplus suggests that D'nonce Technology Bhd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. But either way, D'nonce Technology Bhd has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is D'nonce Technology Bhd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for D'nonce Technology Bhd

In the last year D'nonce Technology Bhd wasn't profitable at an EBIT level, but managed to grow its revenue by 9.5%, to RM194m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, D'nonce Technology Bhd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM3.2m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. 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 D'nonce Technology Bhd is showing 3 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.