Here's Why Greatech Technology Berhad (KLSE:GREATEC) Can Manage Its Debt Responsibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We note that Greatech Technology Berhad (KLSE:GREATEC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Greatech Technology Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Greatech Technology Berhad had RM44.6m of debt, an increase on RM13.4m, over one year. But on the other hand it also has RM263.5m in cash, leading to a RM218.9m net cash position.

A Look At Greatech Technology Berhad's Liabilities

According to the last reported balance sheet, Greatech Technology Berhad had liabilities of RM214.0m due within 12 months, and liabilities of RM39.7m due beyond 12 months. Offsetting these obligations, it had cash of RM263.5m as well as receivables valued at RM327.9m due within 12 months. So it can boast RM337.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Greatech Technology Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Greatech Technology Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Greatech Technology Berhad

In addition to that, we're happy to report that Greatech Technology Berhad has boosted its EBIT by 31%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Greatech Technology 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Greatech Technology 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. In the last three years, Greatech Technology Berhad created free cash flow amounting to 8.6% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Greatech Technology Berhad has net cash of RM218.9m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 31% over the last year. So we don't think Greatech Technology Berhad's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. 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 2 warning signs for Greatech Technology Berhad (of which 1 is a bit unpleasant!) 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.