We Think Malaysian Pacific Industries Berhad (KLSE:MPI) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Malaysian Pacific Industries Berhad (KLSE:MPI) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 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 think about a company's use of debt, we first look at cash and debt together.

What Is Malaysian Pacific Industries Berhad's Net Debt?

As you can see below, at the end of March 2025, Malaysian Pacific Industries Berhad had RM126.6m of debt, up from RM120.9m a year ago. Click the image for more detail. But it also has RM1.12b in cash to offset that, meaning it has RM990.1m net cash.

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

According to the last reported balance sheet, Malaysian Pacific Industries Berhad had liabilities of RM358.6m due within 12 months, and liabilities of RM126.6m due beyond 12 months. Offsetting these obligations, it had cash of RM1.12b as well as receivables valued at RM360.6m due within 12 months. So it actually has RM992.2m more liquid assets than total liabilities.

This excess liquidity suggests that Malaysian Pacific Industries Berhad is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Malaysian Pacific Industries Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Malaysian Pacific Industries Berhad

On top of that, Malaysian Pacific Industries Berhad grew its EBIT by 93% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Malaysian Pacific Industries Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Malaysian Pacific Industries Berhad has RM990.1m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM138m, being 84% of its EBIT. The bottom line is that we do not find Malaysian Pacific Industries Berhad's debt levels at all concerning. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Malaysian Pacific Industries Berhad that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.