We think ViTrox Corporation Berhad (KLSE: VITROX) can manage its debt with ease

Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies ViTrox Corporation Berhad (KLSE: VITROX) uses debt. But should shareholders worry about its use of debt?

When is debt a problem?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest review for ViTrox Corporation Berhad

How much debt does ViTrox Corporation Berhad have?

You can click on the graph below for historical figures, but it shows that as of March 2022, ViTrox Corporation Berhad had debt of RM76.8 million, an increase from RM40.3 million, on a year. However, his balance sheet shows that he holds RM280.1 million in cash, so he actually has net cash of RM203.3 million.

KLSE: VITROX Debt to Equity History July 4, 2022

How healthy is ViTrox Corporation Berhad’s balance sheet?

According to the latest published balance sheet, ViTrox Corporation Berhad had liabilities of RM212.4 million due within 12 months and liabilities of RM66.1 million due beyond 12 months. On the other hand, it had liquid assets of RM280.1 million and RM281.1 million of receivables due within the year. Thus, he can boast of having RM282.8 million more liquid assets than total Passives.

This surplus suggests that ViTrox Corporation Berhad has a conservative balance sheet and could probably eliminate its debt without much difficulty. Simply put, the fact that ViTrox Corporation Berhad has more cash than debt is arguably a good indication that it can safely manage its debt.

On top of that, we are pleased to report that ViTrox Corporation Berhad increased its EBIT by 51%, reducing the specter of future debt repayments. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether ViTrox Corporation Berhad can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. ViTrox Corporation Berhad may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its ability to manage debt. Over the past three years, ViTrox Corporation Berhad’s free cash flow has been 33% of its EBIT, less than expected. This low cash conversion makes debt management more difficult.


While we sympathize with investors who find debt a concern, you should bear in mind that ViTrox Corporation Berhad has a net cash position of RM203.3 million, as well as more liquid assets than liabilities. And it has impressed us with its 51% EBIT growth over the past year. So is ViTrox Corporation Berhad’s debt a risk? This does not seem to us to be the case. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 1 warning sign for ViTrox Corporation Berhad of which you should be aware.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-neutral growth stocks right away.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Luisa D. Fuller