Jade Gas Holdings (ASX:JGH) Is Carrying A Fair Bit Of 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.' 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 Jade Gas Holdings Limited (ASX:JGH) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Jade Gas Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Jade Gas Holdings had AU$8.02m of debt, an increase on AU$1.66m, over one year. However, it does have AU$1.46m in cash offsetting this, leading to net debt of about AU$6.56m.

A Look At Jade Gas Holdings' Liabilities

The latest balance sheet data shows that Jade Gas Holdings had liabilities of AU$8.87m due within a year, and liabilities of AU$39.9k falling due after that. Offsetting these obligations, it had cash of AU$1.46m as well as receivables valued at AU$73.5k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$7.38m.

Given Jade Gas Holdings has a market capitalization of AU$55.7m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jade Gas Holdings'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 .

Check out our latest analysis for Jade Gas Holdings

Since Jade Gas Holdings doesn't have significant operating revenue, shareholders must hope it'll sell some fossil fuels, before it runs out of money.

Caveat Emptor

Over the last twelve months Jade Gas Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at AU$5.4m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled AU$10m in negative free cash flow over the last twelve months. So suffice it to say 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. For example, we've discovered 5 warning signs for Jade Gas Holdings (4 are potentially serious!) 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.