Does Malaysian Pacific Industries Berhad (KLSE:MPI) Have A Healthy Balance Sheet?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Malaysian Pacific Industries Berhad (KLSE:MPI) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Malaysian Pacific Industries Berhad's Debt?

As you can see below, at the end of June 2025, Malaysian Pacific Industries Berhad had RM104.0m of debt, up from RM92.2m a year ago. Click the image for more detail. But it also has RM1.09b in cash to offset that, meaning it has RM988.4m net cash.

How Strong Is Malaysian Pacific Industries Berhad's Balance Sheet?

According to the last reported balance sheet, Malaysian Pacific Industries Berhad had liabilities of RM400.2m due within 12 months, and liabilities of RM131.5m due beyond 12 months. On the other hand, it had cash of RM1.09b and RM376.1m worth of receivables due within a year. So it can boast RM936.8m more liquid assets than total liabilities.

This excess liquidity suggests that Malaysian Pacific Industries Berhad is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Malaysian Pacific Industries Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Malaysian Pacific Industries Berhad

The modesty of its debt load may become crucial for Malaysian Pacific Industries Berhad if management cannot prevent a repeat of the 22% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Malaysian Pacific Industries 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Malaysian Pacific Industries Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Malaysian Pacific Industries Berhad actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Malaysian Pacific Industries Berhad has RM988.4m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 108% of that EBIT to free cash flow, bringing in RM99m. So is Malaysian Pacific Industries Berhad's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Malaysian Pacific Industries Berhad's earnings per share history for free.

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.