Is M K Land Holdings Berhad (KLSE:MKLAND) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 M K Land Holdings Berhad (KLSE:MKLAND) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for M K Land Holdings Berhad

What Is M K Land Holdings Berhad's Net Debt?

As you can see below, at the end of March 2024, M K Land Holdings Berhad had RM47.1m of debt, up from RM43.9m a year ago. Click the image for more detail. However, it does have RM73.7m in cash offsetting this, leading to net cash of RM26.6m.

How Strong Is M K Land Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that M K Land Holdings Berhad had liabilities of RM282.7m due within 12 months and liabilities of RM130.4m due beyond that. Offsetting this, it had RM73.7m in cash and RM81.4m in receivables that were due within 12 months. So its liabilities total RM258.0m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's RM210.8m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Given that M K Land Holdings Berhad has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since M K Land Holdings Berhad will need earnings to service that debt. 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, M K Land Holdings Berhad reported revenue of RM224m, which is a gain of 11%, 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.

So How Risky Is M K Land Holdings Berhad?

While M K Land Holdings Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM12m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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. We've identified 2 warning signs with M K Land Holdings Berhad , 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com