Versatile Creative Berhad (KLSE:VERSATL) Has A Pretty Healthy Balance Sheet

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. As with many other companies Versatile Creative Berhad (KLSE:VERSATL) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.

How Much Debt Does Versatile Creative Berhad Carry?

As you can see below, Versatile Creative Berhad had RM8.95m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM37.1m in cash offsetting this, leading to net cash of RM28.2m.

A Look At Versatile Creative Berhad's Liabilities

We can see from the most recent balance sheet that Versatile Creative Berhad had liabilities of RM60.7m falling due within a year, and liabilities of RM19.2m due beyond that. Offsetting this, it had RM37.1m in cash and RM12.1m in receivables that were due within 12 months. So its liabilities total RM30.7m more than the combination of its cash and short-term receivables.

Given Versatile Creative Berhad has a market capitalization of RM231.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Versatile Creative Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Versatile Creative Berhad

Although Versatile Creative Berhad made a loss at the EBIT level, last year, it was also good to see that it generated RM7.4m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is Versatile Creative Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Versatile Creative 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. During the last year, Versatile Creative Berhad generated free cash flow amounting to a very robust 95% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

Although Versatile Creative Berhad's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of RM28.2m. And it impressed us with free cash flow of RM7.1m, being 95% of its EBIT. So is Versatile Creative Berhad's debt a risk? It doesn't seem so to us. 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 - Versatile Creative Berhad has 1 warning sign we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.