We Think Versatile Creative Berhad (KLSE:VERSATL) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Versatile Creative Berhad (KLSE:VERSATL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.

How Much Debt Does Versatile Creative Berhad Carry?

As you can see below, at the end of September 2025, Versatile Creative Berhad had RM7.73m of debt, up from RM3.75m a year ago. Click the image for more detail. However, it does have RM29.5m in cash offsetting this, leading to net cash of RM21.8m.

A Look At Versatile Creative Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Versatile Creative Berhad had liabilities of RM47.9m due within 12 months and liabilities of RM19.1m due beyond that. Offsetting this, it had RM29.5m in cash and RM29.2m in receivables that were due within 12 months. So it has liabilities totalling RM8.29m more than its cash and near-term receivables, combined.

Of course, Versatile Creative Berhad has a market capitalization of RM243.7m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Versatile Creative Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Versatile Creative Berhad

On the other hand, Versatile Creative Berhad's EBIT dived 16%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Versatile Creative Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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. Happily for any shareholders, Versatile Creative Berhad actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about Versatile Creative Berhad's liabilities, but we can be reassured by the fact it has has net cash of RM21.8m. The cherry on top was that in converted 279% of that EBIT to free cash flow, bringing in RM1.2m. So we don't have any problem with Versatile Creative Berhad's use of debt. 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. To that end, you should be aware of the 1 warning sign we've spotted with Versatile Creative Berhad .

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.