Does Metronic Global Berhad (KLSE:MTRONIC) 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.' 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 Metronic Global Berhad (KLSE:MTRONIC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Metronic Global Berhad

How Much Debt Does Metronic Global Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Metronic Global Berhad had RM10.9m of debt, an increase on RM9.37m, over one year. However, its balance sheet shows it holds RM141.1m in cash, so it actually has RM130.1m net cash.

A Look At Metronic Global Berhad's Liabilities

The latest balance sheet data shows that Metronic Global Berhad had liabilities of RM33.4m due within a year, and liabilities of RM139.3k falling due after that. On the other hand, it had cash of RM141.1m and RM20.3m worth of receivables due within a year. So it can boast RM127.8m more liquid assets than total liabilities.

This surplus strongly suggests that Metronic Global Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Metronic Global Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Metronic Global 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.

In the last year Metronic Global Berhad had a loss before interest and tax, and actually shrunk its revenue by 21%, to RM35m. That makes us nervous, to say the least.

So How Risky Is Metronic Global Berhad?

Although Metronic Global Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM9.6m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. There's no doubt the next few years will be crucial to how the business matures. 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. Be aware that Metronic Global Berhad is showing 2 warning signs in our investment analysis , 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com