Is Euro Holdings Berhad (KLSE:EURO) A Risky Investment?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Euro Holdings Berhad (KLSE:EURO) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Euro Holdings Berhad's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Euro Holdings Berhad had RM33.2m of debt, an increase on RM27.8m, over one year. Net debt is about the same, since the it doesn't have much cash.
How Strong Is Euro Holdings Berhad's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Euro Holdings Berhad had liabilities of RM42.6m due within 12 months and liabilities of RM7.55m due beyond that. Offsetting these obligations, it had cash of RM414.0k as well as receivables valued at RM32.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM17.7m.
Euro Holdings Berhad has a market capitalization of RM73.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Euro Holdings 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.
See our latest analysis for Euro Holdings Berhad
In the last year Euro Holdings Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 69%, to RM117m. Shareholders probably have their fingers crossed that it can grow its way to profits.
Caveat Emptor
While we can certainly appreciate Euro Holdings Berhad's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost RM6.9m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of RM6.2m into a profit. In the meantime, we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Euro Holdings Berhad (of which 1 can't be ignored!) you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.