We Think Nylex (Malaysia) Berhad (KLSE:NYLEX) Has A Fair Chunk Of Debt

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Nylex (Malaysia) Berhad (KLSE:NYLEX) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Nylex (Malaysia) Berhad

What Is Nylex (Malaysia) Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Nylex (Malaysia) Berhad had RM187.0m of debt in August 2020, down from RM241.2m, one year before. However, it also had RM94.0m in cash, and so its net debt is RM93.1m.

How Strong Is Nylex (Malaysia) Berhad's Balance Sheet?

The latest balance sheet data shows that Nylex (Malaysia) Berhad had liabilities of RM285.0m due within a year, and liabilities of RM42.3m falling due after that. On the other hand, it had cash of RM94.0m and RM182.3m worth of receivables due within a year. So it has liabilities totalling RM51.0m more than its cash and near-term receivables, combined.

Nylex (Malaysia) Berhad has a market capitalization of RM118.3m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Nylex (Malaysia) 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.

Over 12 months, Nylex (Malaysia) Berhad made a loss at the EBIT level, and saw its revenue drop to RM1.1b, which is a fall of 27%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Nylex (Malaysia) Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM12m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of RM24m into a profit. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Nylex (Malaysia) Berhad (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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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