Is Mega Fortris Berhad (KLSE:MEGAFB) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Mega Fortris Berhad (KLSE:MEGAFB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Mega Fortris Berhad's Debt?

The image below, which you can click on for greater detail, shows that Mega Fortris Berhad had debt of RM76.8m at the end of September 2025, a reduction from RM85.8m over a year. But on the other hand it also has RM93.2m in cash, leading to a RM16.4m net cash position.

How Strong Is Mega Fortris Berhad's Balance Sheet?

The latest balance sheet data shows that Mega Fortris Berhad had liabilities of RM59.9m due within a year, and liabilities of RM62.3m falling due after that. On the other hand, it had cash of RM93.2m and RM91.6m worth of receivables due within a year. So it actually has RM62.7m more liquid assets than total liabilities.

This surplus suggests that Mega Fortris Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Mega Fortris Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Mega Fortris Berhad

Shareholders should be aware that Mega Fortris Berhad's EBIT was down 41% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Mega Fortris 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Mega Fortris 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 three years, Mega Fortris Berhad burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Mega Fortris Berhad has RM16.4m in net cash and a decent-looking balance sheet. So although we see some areas for improvement, we're not too worried about Mega Fortris Berhad's balance sheet. 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. For example - Mega Fortris Berhad has 1 warning sign we think you should be aware of.

Of course, if you're the type of investor who prefers buying 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 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.