Health Check: How Prudently Does Kumpulan Jetson Berhad (KLSE:JETSON) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Kumpulan Jetson Berhad (KLSE:JETSON) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Kumpulan Jetson Berhad

What Is Kumpulan Jetson Berhad's Net Debt?

The chart below, which you can click on for greater detail, shows that Kumpulan Jetson Berhad had RM56.1m in debt in June 2022; about the same as the year before. However, because it has a cash reserve of RM9.58m, its net debt is less, at about RM46.5m.

A Look At Kumpulan Jetson Berhad's Liabilities

We can see from the most recent balance sheet that Kumpulan Jetson Berhad had liabilities of RM109.7m falling due within a year, and liabilities of RM36.4m due beyond that. Offsetting these obligations, it had cash of RM9.58m as well as receivables valued at RM82.3m due within 12 months. So it has liabilities totalling RM54.3m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of RM65.7m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Kumpulan Jetson Berhad'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.

Over 12 months, Kumpulan Jetson Berhad made a loss at the EBIT level, and saw its revenue drop to RM184m, which is a fall of 5.8%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Kumpulan Jetson Berhad produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at RM37k. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through RM6.9m of cash over the last year. 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 Kumpulan Jetson Berhad has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

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.