Is NationGate Holdings Berhad (KLSE:NATGATE) A Risky Investment?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, NationGate Holdings Berhad (KLSE:NATGATE) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is NationGate Holdings Berhad's Net Debt?

As you can see below, at the end of March 2025, NationGate Holdings Berhad had RM1.87b of debt, up from RM133.3m a year ago. Click the image for more detail. However, it does have RM1.93b in cash offsetting this, leading to net cash of RM60.8m.

A Look At NationGate Holdings Berhad's Liabilities

We can see from the most recent balance sheet that NationGate Holdings Berhad had liabilities of RM3.87b falling due within a year, and liabilities of RM66.4m due beyond that. On the other hand, it had cash of RM1.93b and RM437.4m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM1.58b.

This deficit isn't so bad because NationGate Holdings Berhad is worth RM3.17b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, NationGate Holdings Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for NationGate Holdings Berhad

Better yet, NationGate Holdings Berhad grew its EBIT by 260% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine NationGate Holdings Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. NationGate Holdings Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, NationGate Holdings Berhad saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

Although NationGate Holdings Berhad's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of RM60.8m. And it impressed us with its EBIT growth of 260% over the last year. So we are not troubled with NationGate Holdings Berhad's debt use. 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. Case in point: We've spotted 3 warning signs for NationGate Holdings Berhad you should be aware of, and 1 of them can't be ignored.

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.