Kumpulan Jetson Berhad (KLSE:JETSON) Has Debt But No Earnings; Should You Worry?

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.' 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 can see that Kumpulan Jetson Berhad (KLSE:JETSON) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Kumpulan Jetson Berhad

How Much Debt Does Kumpulan Jetson Berhad Carry?

As you can see below, Kumpulan Jetson Berhad had RM58.6m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM10.1m in cash offsetting this, leading to net debt of about RM48.5m.

How Healthy Is Kumpulan Jetson Berhad's Balance Sheet?

The latest balance sheet data shows that Kumpulan Jetson Berhad had liabilities of RM124.2m due within a year, and liabilities of RM30.7m falling due after that. Offsetting this, it had RM10.1m in cash and RM87.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM56.9m.

When you consider that this deficiency exceeds the company's RM54.9m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive 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 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 18%, to RM181m. 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. To be specific the EBIT loss came in at RM3.9m. 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. Not least because it burned through RM1.5m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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. For example - Kumpulan Jetson Berhad has 3 warning signs we think you should be aware of.

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.