Health Check: How Prudently Does Handal Energy Berhad (KLSE:HANDAL) Use Debt?

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. We can see that Handal Energy Berhad (KLSE:HANDAL) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is Handal Energy Berhad's Net Debt?

As you can see below, Handal Energy Berhad had RM13.7m of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM584.0k in cash offsetting this, leading to net debt of about RM13.1m.

A Look At Handal Energy Berhad's Liabilities

We can see from the most recent balance sheet that Handal Energy Berhad had liabilities of RM86.3m falling due within a year, and liabilities of RM1.32m due beyond that. Offsetting this, it had RM584.0k in cash and RM31.5m in receivables that were due within 12 months. So its liabilities total RM55.4m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the RM12.3m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Handal Energy Berhad would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Handal Energy Berhad 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.

Check out our latest analysis for Handal Energy Berhad

Over 12 months, Handal Energy Berhad made a loss at the EBIT level, and saw its revenue drop to RM7.1m, which is a fall of 50%. That makes us nervous, to say the least.

Caveat Emptor

While Handal Energy Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM13m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through RM435k in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Handal Energy Berhad (at least 2 which are significant) , and understanding them should be part of your investment process.

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.