Is Dagang NeXchange Berhad (KLSE:DNEX) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Dagang NeXchange Berhad (KLSE:DNEX) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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, 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.

What Is Dagang NeXchange Berhad's Debt?

As you can see below, Dagang NeXchange Berhad had RM85.8m of debt at September 2025, down from RM133.3m a year prior. However, it does have RM246.1m in cash offsetting this, leading to net cash of RM160.3m.

How Healthy Is Dagang NeXchange Berhad's Balance Sheet?

We can see from the most recent balance sheet that Dagang NeXchange Berhad had liabilities of RM403.8m falling due within a year, and liabilities of RM1.57b due beyond that. On the other hand, it had cash of RM246.1m and RM227.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM1.50b.

Given this deficit is actually higher than the company's market capitalization of RM1.10b, we think shareholders really should watch Dagang NeXchange Berhad's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 it is future earnings, more than anything, that will determine Dagang NeXchange 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.

See our latest analysis for Dagang NeXchange Berhad

In the last year Dagang NeXchange Berhad had a loss before interest and tax, and actually shrunk its revenue by 5.8%, to RM1.1b. 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 in the last year Dagang NeXchange Berhad had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of RM84m and booked a RM126m accounting loss. But the saving grace is the RM160.3m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Dagang NeXchange Berhad's profit, revenue, and operating cashflow have changed over the last few years.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.