Is M K Land Holdings Berhad (KLSE:MKLAND) Using Too Much Debt?

Warren Buffett famously said, '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. As with many other companies M K Land Holdings Berhad (KLSE:MKLAND) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 M K Land Holdings Berhad

How Much Debt Does M K Land Holdings Berhad Carry?

As you can see below, at the end of September 2024, M K Land Holdings Berhad had RM57.5m of debt, up from RM49.2m a year ago. Click the image for more detail. However, it does have RM55.7m in cash offsetting this, leading to net debt of about RM1.79m.

A Look At M K Land Holdings Berhad's Liabilities

According to the last reported balance sheet, M K Land Holdings Berhad had liabilities of RM347.0m due within 12 months, and liabilities of RM141.5m due beyond 12 months. Offsetting this, it had RM55.7m in cash and RM123.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM309.2m.

This deficit casts a shadow over the RM186.7m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, M K Land Holdings Berhad would likely require a major re-capitalisation if it had to pay its creditors today. M K Land Holdings Berhad has a very little net debt but plenty of other liabilities weighing it down. There's no doubt that we learn most about debt from the balance sheet. But it is M K Land Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, M K Land Holdings Berhad reported revenue of RM243m, which is a gain of 6.1%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, M K Land Holdings Berhad had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RM20m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through RM44m in negative free cash flow over the last year. So suffice it to say we consider the stock to be 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 - M K Land Holdings Berhad has 2 warning signs we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.