Is Metronic Global Berhad (KLSE:MTRONIC) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, Metronic Global Berhad (KLSE:MTRONIC) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Metronic Global Berhad

What Is Metronic Global Berhad's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Metronic Global Berhad had debt of RM10.1m, up from RM7.93m in one year. However, it does have RM139.8m in cash offsetting this, leading to net cash of RM129.7m.

How Healthy Is Metronic Global Berhad's Balance Sheet?

The latest balance sheet data shows that Metronic Global Berhad had liabilities of RM32.2m due within a year, and liabilities of RM132.7k falling due after that. On the other hand, it had cash of RM139.8m and RM21.1m worth of receivables due within a year. So it can boast RM128.5m 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). On this view, lenders should feel as safe as the beloved of a black-belt karate master. 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 it is Metronic Global Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Metronic Global Berhad made a loss at the EBIT level, and saw its revenue drop to RM35m, which is a fall of 25%. To be frank that doesn't bode well.

So How Risky Is Metronic Global Berhad?

While Metronic Global Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM5.8m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Metronic Global Berhad that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.