Health Check: How Prudently Does Mesiniaga Berhad (KLSE:MSNIAGA) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Mesiniaga Berhad (KLSE:MSNIAGA) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Mesiniaga Berhad Carry?

As you can see below, at the end of December 2024, Mesiniaga Berhad had RM13.4m of debt, up from RM10.8m a year ago. Click the image for more detail. But it also has RM48.3m in cash to offset that, meaning it has RM34.9m net cash.

How Healthy Is Mesiniaga Berhad's Balance Sheet?

The latest balance sheet data shows that Mesiniaga Berhad had liabilities of RM66.7m due within a year, and liabilities of RM2.56m falling due after that. Offsetting this, it had RM48.3m in cash and RM89.9m in receivables that were due within 12 months. So it actually has RM69.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that Mesiniaga Berhad's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Mesiniaga Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Mesiniaga Berhad will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend .

View our latest analysis for Mesiniaga Berhad

In the last year Mesiniaga Berhad had a loss before interest and tax, and actually shrunk its revenue by 31%, to RM180m. To be frank that doesn't bode well.

So How Risky Is Mesiniaga Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Mesiniaga Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM12m of cash and made a loss of RM3.4m. Given it only has net cash of RM34.9m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with Mesiniaga Berhad (including 1 which shouldn't be ignored) .

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.