Does JAKS Resources Berhad (KLSE:JAKS) Have A Healthy Balance Sheet?

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.' 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, JAKS Resources Berhad (KLSE:JAKS) does carry debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for JAKS Resources Berhad

How Much Debt Does JAKS Resources Berhad Carry?

The chart below, which you can click on for greater detail, shows that JAKS Resources Berhad had RM370.8m in debt in March 2022; about the same as the year before. However, because it has a cash reserve of RM57.6m, its net debt is less, at about RM313.2m.

A Look At JAKS Resources Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that JAKS Resources Berhad had liabilities of RM537.8m due within 12 months and liabilities of RM306.3m due beyond that. Offsetting these obligations, it had cash of RM57.6m as well as receivables valued at RM542.6m due within 12 months. So its liabilities total RM243.9m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because JAKS Resources Berhad is worth RM551.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if JAKS Resources Berhad can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, JAKS Resources Berhad made a loss at the EBIT level, and saw its revenue drop to RM109m, which is a fall of 44%. To be frank that doesn't bode well.

Caveat Emptor

Not only did JAKS Resources Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost RM49m at the EBIT level. 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 RM67m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - JAKS Resources 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.