Is Willowglen MSC Berhad (KLSE:WILLOW) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Willowglen MSC Berhad (KLSE:WILLOW) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Willowglen MSC Berhad's Net Debt?

As you can see below, at the end of June 2025, Willowglen MSC Berhad had RM9.57m of debt, up from RM9.07m a year ago. Click the image for more detail. But on the other hand it also has RM61.9m in cash, leading to a RM52.4m net cash position.

How Healthy Is Willowglen MSC Berhad's Balance Sheet?

We can see from the most recent balance sheet that Willowglen MSC Berhad had liabilities of RM44.0m falling due within a year, and liabilities of RM3.18m due beyond that. Offsetting these obligations, it had cash of RM61.9m as well as receivables valued at RM129.4m due within 12 months. So it can boast RM144.2m more liquid assets than total liabilities.

This surplus strongly suggests that Willowglen MSC 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. Simply put, the fact that Willowglen MSC Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Willowglen MSC Berhad

And we also note warmly that Willowglen MSC Berhad grew its EBIT by 18% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Willowglen MSC 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Willowglen MSC 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. In the last three years, Willowglen MSC Berhad's free cash flow amounted to 29% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Willowglen MSC Berhad has RM52.4m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 18% over the last year. So is Willowglen MSC Berhad's debt a risk? It doesn't seem so to us. 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. We've identified 3 warning signs with Willowglen MSC Berhad (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.