Is Watkin Jones (LON:WJG) Using Debt Sensibly?

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. Importantly, Watkin Jones Plc (LON:WJG) does carry debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Watkin Jones's Debt?

The image below, which you can click on for greater detail, shows that Watkin Jones had debt of UK£13.4m at the end of March 2025, a reduction from UK£23.1m over a year. But it also has UK£86.8m in cash to offset that, meaning it has UK£73.4m net cash.

How Healthy Is Watkin Jones' Balance Sheet?

We can see from the most recent balance sheet that Watkin Jones had liabilities of UK£96.8m falling due within a year, and liabilities of UK£93.5m due beyond that. Offsetting these obligations, it had cash of UK£86.8m as well as receivables valued at UK£64.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£39.3m.

Watkin Jones has a market capitalization of UK£77.6m, so it could very likely raise cash to ameliorate 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. Despite its noteworthy liabilities, Watkin Jones boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Watkin Jones can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Watkin Jones

In the last year Watkin Jones had a loss before interest and tax, and actually shrunk its revenue by 27%, to UK£316m. To be frank that doesn't bode well.

So How Risky Is Watkin Jones?

While Watkin Jones lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow UK£22m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. For riskier companies like Watkin Jones I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.