Is Globaltec Formation Berhad (KLSE:GLOTEC) A Risky Investment?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Globaltec Formation Berhad (KLSE:GLOTEC) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Globaltec Formation Berhad's Net Debt?
As you can see below, at the end of September 2025, Globaltec Formation Berhad had RM21.3m of debt, up from RM16.3m a year ago. Click the image for more detail. However, it does have RM60.1m in cash offsetting this, leading to net cash of RM38.8m.
How Healthy Is Globaltec Formation Berhad's Balance Sheet?
The latest balance sheet data shows that Globaltec Formation Berhad had liabilities of RM62.2m due within a year, and liabilities of RM33.6m falling due after that. Offsetting this, it had RM60.1m in cash and RM28.5m in receivables that were due within 12 months. So it has liabilities totalling RM7.21m more than its cash and near-term receivables, combined.
Given Globaltec Formation Berhad has a market capitalization of RM191.1m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Globaltec Formation Berhad also has more cash than debt, so we're pretty confident it can manage its debt safely.
See our latest analysis for Globaltec Formation Berhad
Also positive, Globaltec Formation Berhad grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Globaltec Formation 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.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Globaltec Formation 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. Looking at the most recent three years, Globaltec Formation Berhad recorded free cash flow of 27% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.
Summing Up
We could understand if investors are concerned about Globaltec Formation Berhad's liabilities, but we can be reassured by the fact it has has net cash of RM38.8m. And we liked the look of last year's 25% year-on-year EBIT growth. So we don't think Globaltec Formation Berhad's use of debt is risky. 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, we've discovered 1 warning sign for Globaltec Formation Berhad that you should be aware of before investing here.
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.