Is Nuenergy Holdings Berhad (KLSE:NHB) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Nuenergy Holdings Berhad (KLSE:NHB) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Nuenergy Holdings Berhad

What Is Nuenergy Holdings Berhad's Net Debt?

The image below, which you can click on for greater detail, shows that Nuenergy Holdings Berhad had debt of RM19.1m at the end of September 2024, a reduction from RM24.5m over a year. However, it does have RM23.6m in cash offsetting this, leading to net cash of RM4.49m.

How Strong Is Nuenergy Holdings Berhad's Balance Sheet?

According to the last reported balance sheet, Nuenergy Holdings Berhad had liabilities of RM13.7m due within 12 months, and liabilities of RM17.2m due beyond 12 months. Offsetting this, it had RM23.6m in cash and RM10.4m in receivables that were due within 12 months. So it actually has RM3.05m more liquid assets than total liabilities.

This short term liquidity is a sign that Nuenergy Holdings Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Nuenergy Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Nuenergy Holdings 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 Nuenergy Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 73%, to RM12m. To be frank that doesn't bode well.

So How Risky Is Nuenergy Holdings Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Nuenergy Holdings Berhad had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RM172k and booked a RM3.5m accounting loss. Given it only has net cash of RM4.49m, the company may need to raise more capital if it doesn't reach break-even soon. 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Nuenergy Holdings Berhad you should be aware of.

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.