Is Topmix Berhad (KLSE:TOPMIX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Topmix Berhad (KLSE:TOPMIX) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Topmix Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Topmix Berhad had debt of RM23.0m at the end of March 2025, a reduction from RM24.4m over a year. However, its balance sheet shows it holds RM32.0m in cash, so it actually has RM8.98m net cash.

A Look At Topmix Berhad's Liabilities

We can see from the most recent balance sheet that Topmix Berhad had liabilities of RM14.2m falling due within a year, and liabilities of RM20.3m due beyond that. On the other hand, it had cash of RM32.0m and RM18.3m worth of receivables due within a year. So it can boast RM15.8m more liquid assets than total liabilities.

This surplus suggests that Topmix Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Topmix Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Topmix Berhad

In addition to that, we're happy to report that Topmix Berhad has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is Topmix 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Topmix 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, Topmix Berhad's free cash flow amounted to 26% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Topmix Berhad has net cash of RM8.98m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 35% over the last year. So we don't think Topmix Berhad's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Topmix Berhad has 3 warning signs we think 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.