Does Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. 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, 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.

What Is Mr D.I.Y. Group (M) Berhad's Net Debt?

As you can see below, Mr D.I.Y. Group (M) Berhad had RM133.9m of debt at December 2024, down from RM198.0m a year prior. However, its balance sheet shows it holds RM276.0m in cash, so it actually has RM142.0m net cash.

How Strong Is Mr D.I.Y. Group (M) Berhad's Balance Sheet?

The latest balance sheet data shows that Mr D.I.Y. Group (M) Berhad had liabilities of RM635.3m due within a year, and liabilities of RM1.23b falling due after that. On the other hand, it had cash of RM276.0m and RM156.4m worth of receivables due within a year. So its liabilities total RM1.43b more than the combination of its cash and short-term receivables.

Since publicly traded Mr D.I.Y. Group (M) Berhad shares are worth a total of RM13.6b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Mr D.I.Y. Group (M) Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Mr D.I.Y. Group (M) Berhad

Mr D.I.Y. Group (M) Berhad's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Mr D.I.Y. Group (M) 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 company can only pay off debt with cold hard cash, not accounting profits. Mr D.I.Y. Group (M) Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Mr D.I.Y. Group (M) Berhad produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although Mr D.I.Y. Group (M) Berhad's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of RM142.0m. The cherry on top was that in converted 75% of that EBIT to free cash flow, bringing in RM786m. So we don't think Mr D.I.Y. Group (M) Berhad's use of debt is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Mr D.I.Y. Group (M) Berhad you should know about.

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.