Is mTouche Technology Berhad (KLSE:MTOUCHE) A Risky Investment?

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.' 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. As with many other companies mTouche Technology Berhad (KLSE:MTOUCHE) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for mTouche Technology Berhad

How Much Debt Does mTouche Technology Berhad Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 mTouche Technology Berhad had RM9.61m of debt, an increase on none, over one year. However, its balance sheet shows it holds RM50.3m in cash, so it actually has RM40.7m net cash.

A Look At mTouche Technology Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that mTouche Technology Berhad had liabilities of RM16.3m due within 12 months and liabilities of RM10.4m due beyond that. Offsetting this, it had RM50.3m in cash and RM12.3m in receivables that were due within 12 months. So it actually has RM35.9m more liquid assets than total liabilities.

This luscious liquidity implies that mTouche Technology Berhad's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, mTouche Technology Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since mTouche Technology Berhad will need earnings to service that debt. 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.

In the last year mTouche Technology Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 5.1%, to RM15m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is mTouche Technology Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months mTouche Technology Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM946k of cash and made a loss of RM15m. But the saving grace is the RM40.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. For example, we've discovered 4 warning signs for mTouche Technology Berhad (3 are concerning!) that you should be aware of before investing here.

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.