Is WaveFront Berhad (KLSE:WAVEFRNT) Weighed On By Its Debt Load?

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. As with many other companies WaveFront Berhad (KLSE:WAVEFRNT) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is WaveFront Berhad's Net Debt?

As you can see below, at the end of June 2025, WaveFront Berhad had RM72.4m of debt, up from RM56.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds RM240.1m in cash, so it actually has RM167.7m net cash.

How Strong Is WaveFront Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that WaveFront Berhad had liabilities of RM167.3m due within 12 months and liabilities of RM37.8m due beyond that. On the other hand, it had cash of RM240.1m and RM159.5m worth of receivables due within a year. So it actually has RM194.5m more liquid assets than total liabilities.

This surplus liquidity suggests that WaveFront Berhad's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that WaveFront Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is WaveFront 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.

See our latest analysis for WaveFront Berhad

In the last year WaveFront Berhad had a loss before interest and tax, and actually shrunk its revenue by 19%, to RM312m. That's not what we would hope to see.

So How Risky Is WaveFront Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months WaveFront Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM18m of cash and made a loss of RM3.5m. While this does make the company a bit risky, it's important to remember it has net cash of RM167.7m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 2 warning signs for WaveFront Berhad you should be aware of, and 1 of them is significant.

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.