Is Eksons Corporation Berhad (KLSE:EKSONS) 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 note that Eksons Corporation Berhad (KLSE:EKSONS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Eksons Corporation Berhad

What Is Eksons Corporation Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Eksons Corporation Berhad had debt of RM20.2m, up from RM12.8m in one year. But it also has RM210.6m in cash to offset that, meaning it has RM190.4m net cash.

A Look At Eksons Corporation Berhad's Liabilities

The latest balance sheet data shows that Eksons Corporation Berhad had liabilities of RM24.5m due within a year, and liabilities of RM25.4m falling due after that. On the other hand, it had cash of RM210.6m and RM8.52m worth of receivables due within a year. So it actually has RM169.2m more liquid assets than total liabilities.

This surplus strongly suggests that Eksons Corporation Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Eksons Corporation Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Eksons Corporation Berhad's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Eksons Corporation Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 232%, to RM58m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Eksons Corporation Berhad?

While Eksons Corporation Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM9.7m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We also take heart from the solid 232% revenue growth in 12 months; undoubtedly a good sign. So this may well be an interesting business to watch grow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Eksons Corporation Berhad (including 1 which is a bit unpleasant) .

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. 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.
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