Is AE Multi Holdings Berhad (KLSE:AEM) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies AE Multi Holdings Berhad (KLSE:AEM) makes use of debt. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does AE Multi Holdings Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that AE Multi Holdings Berhad had RM42.3m of debt in June 2025, down from RM46.1m, one year before. But on the other hand it also has RM55.7m in cash, leading to a RM13.4m net cash position.

How Strong Is AE Multi Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AE Multi Holdings Berhad had liabilities of RM81.7m due within 12 months and liabilities of RM3.33m due beyond that. Offsetting this, it had RM55.7m in cash and RM22.1m in receivables that were due within 12 months. So its liabilities total RM7.20m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of RM10.8m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, AE Multi Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is AE Multi Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for AE Multi Holdings Berhad

Over 12 months, AE Multi Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM104m, which is a fall of 8.4%. We would much prefer see growth.

So How Risky Is AE Multi Holdings Berhad?

While AE Multi Holdings Berhad lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow RM8.6m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Be aware that AE Multi Holdings Berhad is showing 3 warning signs in our investment analysis , you should know about...

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.

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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.