Is Hume Cement Industries Berhad (KLSE:HUMEIND) Using Too Much Debt?

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 Hume Cement Industries Berhad (KLSE:HUMEIND) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, 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 Hume Cement Industries Berhad's Debt?

As you can see below, Hume Cement Industries Berhad had RM113.9m of debt at September 2025, down from RM238.5m a year prior. However, it does have RM274.9m in cash offsetting this, leading to net cash of RM161.0m.

How Healthy Is Hume Cement Industries Berhad's Balance Sheet?

According to the last reported balance sheet, Hume Cement Industries Berhad had liabilities of RM185.9m due within 12 months, and liabilities of RM275.4m due beyond 12 months. Offsetting this, it had RM274.9m in cash and RM105.7m in receivables that were due within 12 months. So it has liabilities totalling RM80.8m more than its cash and near-term receivables, combined.

Since publicly traded Hume Cement Industries Berhad shares are worth a total of RM2.38b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Hume Cement Industries Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Hume Cement Industries Berhad

The good news is that Hume Cement Industries Berhad has increased its EBIT by 8.5% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hume Cement Industries 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Hume Cement Industries 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. Happily for any shareholders, Hume Cement Industries Berhad actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Hume Cement Industries Berhad's liabilities, but we can be reassured by the fact it has has net cash of RM161.0m. And it impressed us with free cash flow of RM330m, being 113% of its EBIT. So is Hume Cement Industries Berhad's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for Hume Cement Industries Berhad you should be aware of.

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.