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. We note that Jadran d.d. (ZGSE:JDRN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.
See our latest analysis for Jadran d.d
How Much Debt Does Jadran d.d Carry?
As you can see below, Jadran d.d had €52.2m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has €1.61m in cash leading to net debt of about €50.6m.
How Healthy Is Jadran d.d's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Jadran d.d had liabilities of €16.4m due within 12 months and liabilities of €56.0m due beyond that. Offsetting this, it had €1.61m in cash and €1.19m in receivables that were due within 12 months. So it has liabilities totalling €69.7m more than its cash and near-term receivables, combined.
This deficit casts a shadow over the €37.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Jadran d.d would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jadran d.d's earnings that will influence how the balance sheet holds up in the future. 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.
In the last year Jadran d.d had a loss before interest and tax, and actually shrunk its revenue by 2.5%, to €30m. We would much prefer see growth.
Caveat Emptor
Over the last twelve months Jadran d.d produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €3.1m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of €3.2m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. To that end, you should learn about the 3 warning signs we've spotted with Jadran d.d (including 2 which shouldn't be ignored) .
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.
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About ZGSE:JDRN
Jadran d.d
Operates hotels, resorts, and campsites in the Republic of Croatia.
Low with imperfect balance sheet.
