Is Hubline Berhad (KLSE:HUBLINE) Using Too Much 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 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. We note that Hubline Berhad (KLSE:HUBLINE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

We've discovered 3 warning signs about Hubline Berhad. View them for free.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Hubline Berhad's Debt?

As you can see below, Hubline Berhad had RM85.9m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM46.9m in cash offsetting this, leading to net debt of about RM39.0m.

How Strong Is Hubline Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hubline Berhad had liabilities of RM118.3m due within 12 months and liabilities of RM57.7m due beyond that. On the other hand, it had cash of RM46.9m and RM27.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM101.4m.

Hubline Berhad has a market capitalization of RM193.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Hubline Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Hubline Berhad

In the last year Hubline Berhad had a loss before interest and tax, and actually shrunk its revenue by 5.7%, to RM200m. That's not what we would hope to see.

Caveat Emptor

Importantly, Hubline Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM10.0m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through RM14m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Hubline Berhad you should be aware of, and 1 of them can't be ignored.

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.