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华尔街日报Is SBC Corporation Berhad (KLSE:SBCCORP) Using Too Much 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 can see that SBC Corporation Berhad (KLSE:SBCCORP) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does SBC Corporation Berhad Carry?
You can click the graphic below for the historical numbers, but it shows that SBC Corporation Berhad had RM98.0m of debt in September 2025, down from RM112.5m, one year before. On the flip side, it has RM38.0m in cash leading to net debt of about RM60.1m.
How Healthy Is SBC Corporation Berhad's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that SBC Corporation Berhad had liabilities of RM93.7m due within 12 months and liabilities of RM57.9m due beyond that. Offsetting these obligations, it had cash of RM38.0m as well as receivables valued at RM64.2m due within 12 months. So its liabilities total RM49.5m more than the combination of its cash and short-term receivables.
This is a mountain of leverage relative to its market capitalization of RM79.4m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry.
Check out our latest analysis for SBC Corporation Berhad
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
SBC Corporation Berhad's debt is 2.5 times its EBITDA, and its EBIT cover its interest expense 3.0 times over. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. Pleasingly, SBC Corporation Berhad is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 505% gain in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is SBC Corporation Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, SBC Corporation Berhad reported free cash flow worth 18% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.
Our View
SBC Corporation Berhad's interest cover and conversion of EBIT to free cash flow definitely weigh on it, in our esteem. But the good news is it seems to be able to grow its EBIT with ease. We think that SBC Corporation Berhad's debt does make it a bit risky, after considering the aforementioned data points together. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. 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. Be aware that SBC Corporation Berhad is showing 1 warning sign in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.