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

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.' 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. As with many other companies Kumpulan Jetson Berhad (KLSE:JETSON) makes use of debt. 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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kumpulan Jetson Berhad

How Much Debt Does Kumpulan Jetson Berhad Carry?

As you can see below, Kumpulan Jetson Berhad had RM57.6m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of RM14.0m, its net debt is less, at about RM43.6m.

A Look At Kumpulan Jetson Berhad's Liabilities

According to the last reported balance sheet, Kumpulan Jetson Berhad had liabilities of RM125.7m due within 12 months, and liabilities of RM40.1m due beyond 12 months. Offsetting these obligations, it had cash of RM14.0m as well as receivables valued at RM68.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM83.6m.

Given this deficit is actually higher than the company's market capitalization of RM57.6m, 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. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Kumpulan Jetson Berhad will need earnings to service that debt. 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 Kumpulan Jetson Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 5.6%, to RM202m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Kumpulan Jetson Berhad had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM3.1m. 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 RM8.3m 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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Kumpulan Jetson Berhad (including 1 which shouldn't be ignored) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.