Kumpulan Jetson Berhad (KLSE:JETSON) Is Making Moderate Use Of Debt

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.' 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?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Kumpulan Jetson Berhad

What Is Kumpulan Jetson Berhad's Debt?

As you can see below, Kumpulan Jetson Berhad had RM62.1m of debt at March 2021, down from RM65.8m a year prior. However, because it has a cash reserve of RM6.54m, its net debt is less, at about RM55.6m.

How Healthy Is Kumpulan Jetson Berhad's Balance Sheet?

We can see from the most recent balance sheet that Kumpulan Jetson Berhad had liabilities of RM122.5m falling due within a year, and liabilities of RM30.6m due beyond that. On the other hand, it had cash of RM6.54m and RM97.9m worth of receivables due within a year. So it has liabilities totalling RM48.7m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Kumpulan Jetson Berhad has a market capitalization of RM101.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 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 3.4%, to RM172m. 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 RM1.1m. 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 RM6.5m of cash over the last year. So suffice it to say we consider the stock very 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 4 warning signs (and 1 which is potentially serious) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. 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.
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