Does Linkers Industries (NASDAQ:LNKS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Linkers Industries Limited (NASDAQ:LNKS) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Linkers Industries's Debt?

The image below, which you can click on for greater detail, shows that Linkers Industries had debt of RM8.18m at the end of December 2024, a reduction from RM8.99m over a year. But it also has RM30.0m in cash to offset that, meaning it has RM21.8m net cash.

How Healthy Is Linkers Industries' Balance Sheet?

According to the last reported balance sheet, Linkers Industries had liabilities of RM11.3m due within 12 months, and liabilities of RM1.37m due beyond 12 months. On the other hand, it had cash of RM30.0m and RM6.06m worth of receivables due within a year. So it actually has RM23.3m more liquid assets than total liabilities.

This luscious liquidity implies that Linkers Industries' 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. Simply put, the fact that Linkers Industries 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 Linkers Industries 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.

View our latest analysis for Linkers Industries

Over 12 months, Linkers Industries made a loss at the EBIT level, and saw its revenue drop to RM23m, which is a fall of 19%. We would much prefer see growth.

So How Risky Is Linkers Industries?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Linkers Industries lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of RM243k and booked a RM2.5m accounting loss. But the saving grace is the RM21.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Linkers Industries has 3 warning signs (and 2 which are a bit unpleasant) we think 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.