Here's Why Astro Malaysia Holdings Berhad (KLSE:ASTRO) Is Weighed Down By Its Debt Load

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Astro Malaysia Holdings Berhad (KLSE:ASTRO) makes use of debt. But should shareholders be worried about its use of debt?

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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. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Astro Malaysia Holdings Berhad Carry?

The image below, which you can click on for greater detail, shows that Astro Malaysia Holdings Berhad had debt of RM1.70b at the end of July 2025, a reduction from RM1.80b over a year. However, it also had RM847.7m in cash, and so its net debt is RM850.6m.

How Strong Is Astro Malaysia Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Astro Malaysia Holdings Berhad had liabilities of RM1.43b falling due within a year, and liabilities of RM2.63b due beyond that. Offsetting these obligations, it had cash of RM847.7m as well as receivables valued at RM486.9m due within 12 months. So its liabilities total RM2.72b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the RM574.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Astro Malaysia Holdings Berhad would likely require a major re-capitalisation if it had to pay its creditors today.

Check out our latest analysis for Astro Malaysia Holdings Berhad

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While Astro Malaysia Holdings Berhad has a quite reasonable net debt to EBITDA multiple of 2.4, its interest cover seems weak, at 1.3. This does suggest the company is paying fairly high interest rates. Either way there's no doubt the stock is using meaningful leverage. Shareholders should be aware that Astro Malaysia Holdings Berhad's EBIT was down 28% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Astro Malaysia Holdings Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Astro Malaysia Holdings Berhad actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

On the face of it, Astro Malaysia Holdings Berhad's EBIT growth rate left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Overall, it seems to us that Astro Malaysia Holdings Berhad's balance sheet is really quite a risk to the business. For this reason we're pretty cautious about the stock, and we think shareholders should keep a close eye on its liquidity. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Astro Malaysia Holdings Berhad (2 are potentially serious!) that you should be aware of before investing here.

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.