Is Majuperak Holdings Berhad (KLSE:MJPERAK) A Risky Investment?

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 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, Majuperak Holdings Berhad (KLSE:MJPERAK) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Majuperak Holdings Berhad

How Much Debt Does Majuperak Holdings Berhad Carry?

As you can see below, at the end of June 2023, Majuperak Holdings Berhad had RM12.1m of debt, up from RM10.8m a year ago. Click the image for more detail. On the flip side, it has RM2.37m in cash leading to net debt of about RM9.69m.

A Look At Majuperak Holdings Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Majuperak Holdings Berhad had liabilities of RM70.9m due within 12 months and liabilities of RM22.4m due beyond that. On the other hand, it had cash of RM2.37m and RM98.1m worth of receivables due within a year. So it can boast RM7.26m more liquid assets than total liabilities.

This short term liquidity is a sign that Majuperak Holdings Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Majuperak Holdings 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.

In the last year Majuperak Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 41%, to RM30m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Majuperak Holdings Berhad still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping RM14m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. This one is a bit too risky for our liking. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Majuperak Holdings Berhad you should be aware of, and 1 of them is significant.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.