Aemulus Holdings Berhad (KLSE:AEMULUS) Is Making Moderate Use Of Debt

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.' 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 Aemulus Holdings Berhad (KLSE:AEMULUS) makes use of debt. But the more important question is: how much risk is that debt creating?

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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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Aemulus Holdings Berhad's Net Debt?

As you can see below, at the end of December 2024, Aemulus Holdings Berhad had RM45.4m of debt, up from RM33.9m a year ago. Click the image for more detail. On the flip side, it has RM7.79m in cash leading to net debt of about RM37.6m.

How Healthy Is Aemulus Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Aemulus Holdings Berhad had liabilities of RM50.0m falling due within a year, and liabilities of RM12.9m due beyond that. On the other hand, it had cash of RM7.79m and RM58.4m worth of receivables due within a year. So it can boast RM3.34m more liquid assets than total liabilities.

This short term liquidity is a sign that Aemulus 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 Aemulus 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.

See our latest analysis for Aemulus Holdings Berhad

In the last year Aemulus Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 137%, to RM52m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

While we can certainly appreciate Aemulus Holdings Berhad's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at RM14m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. Nonetheless, the revenue growth is clearly impressive and that would make it easier to raise capital if need be. So it's risky, but with some potential. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Aemulus Holdings Berhad (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.