Here's Why Minho (M) Berhad (KLSE:MINHO) Can Manage Its Debt Responsibly

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 Minho (M) Berhad (KLSE:MINHO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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, 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Minho (M) Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Minho (M) Berhad had RM14.7m of debt in June 2025, down from RM23.5m, one year before. However, its balance sheet shows it holds RM71.3m in cash, so it actually has RM56.6m net cash.

A Look At Minho (M) Berhad's Liabilities

The latest balance sheet data shows that Minho (M) Berhad had liabilities of RM50.1m due within a year, and liabilities of RM16.6m falling due after that. On the other hand, it had cash of RM71.3m and RM33.4m worth of receivables due within a year. So it actually has RM37.9m more liquid assets than total liabilities.

This excess liquidity is a great indication that Minho (M) Berhad's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Minho (M) Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Minho (M) Berhad

The modesty of its debt load may become crucial for Minho (M) Berhad if management cannot prevent a repeat of the 51% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But it is Minho (M) 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 company can only pay off debt with cold hard cash, not accounting profits. Minho (M) 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. Over the last three years, Minho (M) Berhad actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Minho (M) Berhad has RM56.6m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM13m, being 103% of its EBIT. So we don't think Minho (M) Berhad's use of debt is risky. 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. For example, we've discovered 4 warning signs for Minho (M) Berhad that you should be aware of before investing here.

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.