Suria Capital Holdings Berhad (KLSE:SURIA) Could Easily Take On More Debt

Warren Buffett famously said, '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. We note that Suria Capital Holdings Berhad (KLSE:SURIA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Suria Capital Holdings Berhad's Net Debt?

As you can see below, Suria Capital Holdings Berhad had RM24.1m of debt at December 2024, down from RM76.8m a year prior. However, it does have RM250.0m in cash offsetting this, leading to net cash of RM225.9m.

How Strong Is Suria Capital Holdings Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Suria Capital Holdings Berhad had liabilities of RM66.5m due within 12 months and liabilities of RM178.2m due beyond that. Offsetting these obligations, it had cash of RM250.0m as well as receivables valued at RM82.2m due within 12 months. So it can boast RM87.5m more liquid assets than total liabilities.

This surplus suggests that Suria Capital Holdings Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Suria Capital Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Suria Capital Holdings Berhad

But the other side of the story is that Suria Capital Holdings Berhad saw its EBIT decline by 5.4% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Suria Capital Holdings Berhad can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Suria Capital Holdings Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Suria Capital Holdings Berhad recorded free cash flow worth 79% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Suria Capital Holdings Berhad has net cash of RM225.9m, as well as more liquid assets than liabilities. The cherry on top was that in converted 79% of that EBIT to free cash flow, bringing in RM37m. So is Suria Capital Holdings Berhad's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Suria Capital Holdings Berhad, you may well want to click here to check an interactive graph of its earnings per share history.

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.