Does Jatcorp (ASX:JATDD) Have A Healthy Balance Sheet?

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.' 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. We can see that Jatcorp Limited (ASX:JATDD) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Jatcorp

How Much Debt Does Jatcorp Carry?

As you can see below, Jatcorp had AU$3.17m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has AU$3.95m in cash to offset that, meaning it has AU$777.3k net cash.

How Strong Is Jatcorp's Balance Sheet?

The latest balance sheet data shows that Jatcorp had liabilities of AU$13.4m due within a year, and liabilities of AU$2.44m falling due after that. On the other hand, it had cash of AU$3.95m and AU$1.49m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$10.4m.

This deficit isn't so bad because Jatcorp is worth AU$23.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Jatcorp also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Jatcorp will need earnings to service that debt. 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.

Over 12 months, Jatcorp reported revenue of AU$57m, which is a gain of 52%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Jatcorp?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Jatcorp lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of AU$963k and booked a AU$2.3m accounting loss. Given it only has net cash of AU$777.3k, the company may need to raise more capital if it doesn't reach break-even soon. Jatcorp's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Jatcorp (1 is a bit unpleasant) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.