Does Dagang NeXchange Berhad (KLSE:DNEX) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Dagang NeXchange Berhad (KLSE:DNEX) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

View our latest analysis for Dagang NeXchange Berhad

What Is Dagang NeXchange Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Dagang NeXchange Berhad had debt of RM133.3m at the end of December 2024, a reduction from RM297.4m over a year. But on the other hand it also has RM232.0m in cash, leading to a RM98.7m net cash position.

How Strong Is Dagang NeXchange Berhad's Balance Sheet?

According to the last reported balance sheet, Dagang NeXchange Berhad had liabilities of RM506.4m due within 12 months, and liabilities of RM1.60b due beyond 12 months. Offsetting this, it had RM232.0m in cash and RM218.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM1.65b.

The deficiency here weighs heavily on the RM954.8m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Dagang NeXchange Berhad would probably need a major re-capitalization if its creditors were to demand repayment. Given that Dagang NeXchange 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Dagang NeXchange Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Dagang NeXchange Berhad made a loss at the EBIT level, and saw its revenue drop to RM1.2b, which is a fall of 8.1%. We would much prefer see growth.

So How Risky Is Dagang NeXchange Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Dagang NeXchange Berhad lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of RM78m and booked a RM48m accounting loss. But the saving grace is the RM98.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 1 warning sign for Dagang NeXchange Berhad you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.