Is QES Group Berhad (KLSE:QES) Using Too Much 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies QES Group Berhad (KLSE:QES) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

What Is QES Group Berhad's Debt?

As you can see below, at the end of September 2025, QES Group Berhad had RM65.1m of debt, up from RM36.8m a year ago. Click the image for more detail. However, its balance sheet shows it holds RM110.1m in cash, so it actually has RM45.0m net cash.

How Strong Is QES Group Berhad's Balance Sheet?

We can see from the most recent balance sheet that QES Group Berhad had liabilities of RM79.2m falling due within a year, and liabilities of RM48.0m due beyond that. Offsetting these obligations, it had cash of RM110.1m as well as receivables valued at RM68.2m due within 12 months. So it can boast RM51.1m more liquid assets than total liabilities.

This surplus suggests that QES Group Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, QES Group Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for QES Group Berhad

Also positive, QES Group Berhad grew its EBIT by 27% in the last year, and that should make it 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 QES Group Berhad's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. QES Group 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 most recent three years, QES Group Berhad recorded free cash flow worth 62% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case QES Group Berhad has RM45.0m in net cash and a decent-looking balance sheet. And we liked the look of last year's 27% year-on-year EBIT growth. So we don't think QES Group Berhad's use of debt is risky. 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 instance, we've identified 1 warning sign for QES Group 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.