Is Kumpulan Jetson Berhad (KLSE:JETSON) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Kumpulan Jetson Berhad (KLSE:JETSON) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kumpulan Jetson Berhad

What Is Kumpulan Jetson Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Kumpulan Jetson Berhad had RM51.8m of debt in March 2023, down from RM58.3m, one year before. However, because it has a cash reserve of RM8.48m, its net debt is less, at about RM43.4m.

A Look At Kumpulan Jetson Berhad's Liabilities

The latest balance sheet data shows that Kumpulan Jetson Berhad had liabilities of RM131.6m due within a year, and liabilities of RM34.4m falling due after that. Offsetting this, it had RM8.48m in cash and RM75.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM82.4m.

Given this deficit is actually higher than the company's market capitalization of RM71.0m, we think shareholders really should watch Kumpulan Jetson Berhad's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Kumpulan Jetson Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Kumpulan Jetson Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 9.7%, to RM205m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Kumpulan Jetson Berhad produced an earnings before interest and tax (EBIT) loss. Indeed, it lost RM3.4m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of RM9.0m. In the meantime, we consider the stock to be risky. 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 2 warning signs with Kumpulan Jetson Berhad (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.