Jati Tinggi Group Berhad (KLSE:JTGROUP) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Jati Tinggi Group Berhad (KLSE:JTGROUP) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Jati Tinggi Group Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of August 2025 Jati Tinggi Group Berhad had RM23.4m of debt, an increase on RM19.4m, over one year. However, it does have RM45.1m in cash offsetting this, leading to net cash of RM21.7m.

A Look At Jati Tinggi Group Berhad's Liabilities

According to the last reported balance sheet, Jati Tinggi Group Berhad had liabilities of RM68.9m due within 12 months, and liabilities of RM1.97m due beyond 12 months. Offsetting this, it had RM45.1m in cash and RM112.1m in receivables that were due within 12 months. So it actually has RM86.4m more liquid assets than total liabilities.

This luscious liquidity implies that Jati Tinggi Group Berhad's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Jati Tinggi Group Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Jati Tinggi Group Berhad

Even more impressive was the fact that Jati Tinggi Group Berhad grew its EBIT by 138% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jati Tinggi Group Berhad's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Jati Tinggi Group Berhad has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Jati Tinggi Group Berhad saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Jati Tinggi Group Berhad has RM21.7m in net cash and a decent-looking balance sheet. And we liked the look of last year's 138% year-on-year EBIT growth. So we don't think Jati Tinggi Group Berhad's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Jati Tinggi Group Berhad that you should be aware of.

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. 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.