SMTrack Berhad (KLSE:SMTRACK) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 SMTrack Berhad (KLSE:SMTRACK) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 SMTrack Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that SMTrack Berhad had RM8.98m of debt in March 2025, down from RM17.7m, one year before. However, it does have RM199.0k in cash offsetting this, leading to net debt of about RM8.78m.

How Strong Is SMTrack Berhad's Balance Sheet?

According to the last reported balance sheet, SMTrack Berhad had liabilities of RM20.4m due within 12 months, and liabilities of RM2.36m due beyond 12 months. Offsetting this, it had RM199.0k in cash and RM5.08m in receivables that were due within 12 months. So it has liabilities totalling RM17.5m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's RM13.2m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SMTrack Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for SMTrack Berhad

In the last year SMTrack Berhad had a loss before interest and tax, and actually shrunk its revenue by 57%, to RM7.8m. That makes us nervous, to say the least.

Caveat Emptor

Not only did SMTrack Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable RM36m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of RM25m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with SMTrack Berhad (including 3 which are a bit unpleasant) .

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.