David Iben put it well when he declared, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Gromutual Berhad (KLSE:GMUTUAL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies apply debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business applys is to view at its cash and debt toreceiveher.
What Is Gromutual Berhad’s Debt?
The image below, which you can click on for greater detail, displays that Gromutual Berhad had debt of RM79.9m at the finish of September 2025, a reduction from RM89.2m over a year. However, it does have RM95.9m in cash offsetting this, leading to net cash of RM16.0m.
A Look At Gromutual Berhad’s Liabilities
According to the last reported balance sheet, Gromutual Berhad had liabilities of RM60.0m due within 12 months, and liabilities of RM48.1m due beyond 12 months. On the other hand, it had cash of RM95.9m and RM22.4m worth of receivables due within a year. So it can boast RM10.2m more liquid assets than total liabilities.
This short term liquidity is a sign that Gromutual Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Gromutual Berhad boasts net cash, so it’s fair to declare it does not have a heavy debt load!
Check out our latest analysis for Gromutual Berhad
Even more impressive was the fact that Gromutual Berhad grew its EBIT by 163% over twelve months. If maintained that growth will create the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Gromutual Berhad’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth viewing at the earnings trfinish. Click here for an interactive snapshot.
Finally, a business requireds free cash flow to pay off debt; accounting profits just don’t cut it. While Gromutual Berhad has net cash on its balance sheet, it’s still worth taking a view at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to support us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Gromutual Berhad actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion receives us as excited as the crowd when the beat drops at a Daft Punk concert.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Gromutual Berhad has net cash of RM16.0m, as well as more liquid assets than liabilities. The cherry on top was that in converted 105% of that EBIT to free cash flow, bringing in RM57m. So we don’t consider Gromutual Berhad’s apply of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet – far from it. We’ve identified 3 warning signs with Gromutual Berhad , and understanding them should be part of your investment process.
Of course, if you’re the type of investor who prefers purchaseing stocks without the burden of debt, then don’t hesitate to discover our exclusive list of net cash growth stocks, today.
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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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
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