Is Kumpulan Jetson Berhad (KLSE:JETSON) Using Debt Sensibly?

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.' 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. Importantly, Kumpulan Jetson Berhad (KLSE:JETSON) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Kumpulan Jetson Berhad

What Is Kumpulan Jetson Berhad's Debt?

The chart below, which you can click on for greater detail, shows that Kumpulan Jetson Berhad had RM57.5m in debt in December 2021; about the same as the year before. On the flip side, it has RM13.8m in cash leading to net debt of about RM43.7m.

How Healthy Is Kumpulan Jetson Berhad's Balance Sheet?

According to the last reported balance sheet, Kumpulan Jetson Berhad had liabilities of RM105.8m due within 12 months, and liabilities of RM34.5m due beyond 12 months. On the other hand, it had cash of RM13.8m and RM74.3m worth of receivables due within a year. So it has liabilities totalling RM52.2m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of RM57.6m, so it does suggest shareholders should keep an eye on Kumpulan Jetson Berhad's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Kumpulan Jetson Berhad 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.

Over 12 months, Kumpulan Jetson Berhad reported revenue of RM185m, which is a gain of 17%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

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 RM1.3m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through RM4.0m of cash over the last year. So in short it's a really 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. We've identified 3 warning signs with Kumpulan Jetson Berhad , 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.