Is Leveljump Healthcare (CVE:JUMP) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Leveljump Healthcare Corp. (CVE:JUMP) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Leveljump Healthcare's Debt?

The chart below, which you can click on for greater detail, shows that Leveljump Healthcare had CA$7.22m in debt in June 2025; about the same as the year before. However, because it has a cash reserve of CA$234.6k, its net debt is less, at about CA$6.98m.

How Healthy Is Leveljump Healthcare's Balance Sheet?

According to the last reported balance sheet, Leveljump Healthcare had liabilities of CA$5.86m due within 12 months, and liabilities of CA$9.80m due beyond 12 months. Offsetting these obligations, it had cash of CA$234.6k as well as receivables valued at CA$2.82m due within 12 months. So its liabilities total CA$12.6m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$5.31m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Leveljump Healthcare would probably need a major re-capitalization if its creditors were to demand repayment.

Check out our latest analysis for Leveljump Healthcare

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Leveljump Healthcare shareholders face the double whammy of a high net debt to EBITDA ratio (7.2), and fairly weak interest coverage, since EBIT is just 0.44 times the interest expense. This means we'd consider it to have a heavy debt load. One redeeming factor for Leveljump Healthcare is that it turned last year's EBIT loss into a gain of CA$483k, over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Leveljump Healthcare will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Happily for any shareholders, Leveljump Healthcare actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

To be frank both Leveljump Healthcare's interest cover and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. We should also note that Healthcare industry companies like Leveljump Healthcare commonly do use debt without problems. Looking at the bigger picture, it seems clear to us that Leveljump Healthcare's use of debt is creating risks for the company. If all goes well, that should boost returns, but on the flip side, the risk of permanent capital loss is elevated by the debt. 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. We've identified 4 warning signs with Leveljump Healthcare (at least 3 which can't be ignored) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.