We Think Karyon Industries Berhad (KLSE:KARYON) Can Manage Its Debt With Ease

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Karyon Industries Berhad (KLSE:KARYON) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Karyon Industries Berhad Carry?

The image below, which you can click on for greater detail, shows that at December 2024 Karyon Industries Berhad had debt of RM8.43m, up from RM5.31m in one year. But on the other hand it also has RM33.2m in cash, leading to a RM24.8m net cash position.

A Look At Karyon Industries Berhad's Liabilities

We can see from the most recent balance sheet that Karyon Industries Berhad had liabilities of RM18.6m falling due within a year, and liabilities of RM11.8m due beyond that. Offsetting these obligations, it had cash of RM33.2m as well as receivables valued at RM33.4m due within 12 months. So it can boast RM36.2m more liquid assets than total liabilities.

This surplus strongly suggests that Karyon Industries Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Karyon Industries Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Karyon Industries Berhad

On top of that, Karyon Industries Berhad grew its EBIT by 47% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is Karyon Industries 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Karyon Industries Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Karyon Industries Berhad's free cash flow amounted to 47% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Karyon Industries Berhad has net cash of RM24.8m, as well as more liquid assets than liabilities. And we liked the look of last year's 47% year-on-year EBIT growth. So is Karyon 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Karyon Industries Berhad you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.