Health Check: How Prudently Does Nova MSC Berhad (KLSE:NOVAMSC) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Nova MSC Berhad (KLSE:NOVAMSC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Nova MSC Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Nova MSC Berhad had RM7.25m of debt in March 2025, down from RM8.07m, one year before. However, it does have RM27.6m in cash offsetting this, leading to net cash of RM20.4m.

A Look At Nova MSC Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Nova MSC Berhad had liabilities of RM18.6m due within 12 months and liabilities of RM8.45m due beyond that. Offsetting this, it had RM27.6m in cash and RM12.7m in receivables that were due within 12 months. So it can boast RM13.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Nova MSC Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Nova MSC 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 Nova MSC Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Nova MSC Berhad

In the last year Nova MSC Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 8.1%, to RM37m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Nova MSC Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Nova MSC Berhad had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through RM3.1m of cash and made a loss of RM5.0m. But the saving grace is the RM20.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Nova MSC Berhad (2 are a bit concerning!) that you should be aware of before investing here.

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.

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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.