Health Check: How Prudently Does mTouche Technology Berhad (KLSE:MTOUCHE) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 mTouche Technology Berhad (KLSE:MTOUCHE) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 4 warning signs about mTouche Technology Berhad. View them for free.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does mTouche Technology Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 mTouche Technology Berhad had RM9.48m of debt, an increase on none, over one year. But on the other hand it also has RM45.6m in cash, leading to a RM36.2m net cash position.

A Look At mTouche Technology Berhad's Liabilities

The latest balance sheet data shows that mTouche Technology Berhad had liabilities of RM15.8m due within a year, and liabilities of RM10.7m falling due after that. On the other hand, it had cash of RM45.6m and RM14.8m worth of receivables due within a year. So it can boast RM34.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that mTouche Technology Berhad's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that mTouche Technology Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since mTouche Technology 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.

See our latest analysis for mTouche Technology Berhad

In the last year mTouche Technology Berhad had a loss before interest and tax, and actually shrunk its revenue by 32%, to RM12m. That makes us nervous, to say the least.

So How Risky Is mTouche Technology Berhad?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that mTouche Technology Berhad had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through RM8.6m of cash and made a loss of RM15m. But the saving grace is the RM36.2m on the balance sheet. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for mTouche Technology Berhad (of which 3 are a bit concerning!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.