Mikro MSC Berhad (KLSE:MIKROMB) Has A Pretty 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.' 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 Mikro MSC Berhad (KLSE:MIKROMB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. 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, 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.

How Much Debt Does Mikro MSC Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that Mikro MSC Berhad had RM6.84m of debt in March 2025, down from RM7.42m, one year before. But on the other hand it also has RM30.2m in cash, leading to a RM23.3m net cash position.

How Strong Is Mikro MSC Berhad's Balance Sheet?

We can see from the most recent balance sheet that Mikro MSC Berhad had liabilities of RM13.2m falling due within a year, and liabilities of RM11.1m due beyond that. Offsetting this, it had RM30.2m in cash and RM32.6m in receivables that were due within 12 months. So it can boast RM38.5m more liquid assets than total liabilities.

This excess liquidity suggests that Mikro MSC Berhad is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Mikro MSC Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Mikro MSC Berhad

It is just as well that Mikro MSC Berhad's load is not too heavy, because its EBIT was down 70% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But it is Mikro MSC 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Mikro 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, Mikro MSC Berhad created free cash flow amounting to 2.7% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Mikro MSC Berhad has RM23.3m in net cash and a decent-looking balance sheet. So we don't have any problem with Mikro MSC Berhad's use of debt. 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. For instance, we've identified 2 warning signs for Mikro MSC Berhad that you should be aware of.

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.