Is Cabnet Holdings Berhad (KLSE:CABNET) A Risky Investment?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Cabnet Holdings Berhad (KLSE:CABNET) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Cabnet Holdings Berhad's Debt?
As you can see below, at the end of August 2025, Cabnet Holdings Berhad had RM18.4m of debt, up from RM15.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds RM21.1m in cash, so it actually has RM2.74m net cash.
How Strong Is Cabnet Holdings Berhad's Balance Sheet?
According to the last reported balance sheet, Cabnet Holdings Berhad had liabilities of RM73.7m due within 12 months, and liabilities of RM10.9m due beyond 12 months. Offsetting this, it had RM21.1m in cash and RM75.2m in receivables that were due within 12 months. So it actually has RM11.7m more liquid assets than total liabilities.
It's good to see that Cabnet Holdings Berhad has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Cabnet Holdings Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!
View our latest analysis for Cabnet Holdings Berhad
Shareholders should be aware that Cabnet Holdings Berhad's EBIT was down 61% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is Cabnet Holdings 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Cabnet 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. Looking at the most recent three years, Cabnet Holdings Berhad recorded free cash flow of 42% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Summing Up
While it is always sensible to investigate a company's debt, in this case Cabnet Holdings Berhad has RM2.74m in net cash and a decent-looking balance sheet. So we are not troubled with Cabnet Holdings Berhad's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Cabnet 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.