Jadi Imaging Holdings Berhad (KLSE:JADI) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Jadi Imaging Holdings Berhad (KLSE:JADI) makes use of debt. But is this debt a concern to shareholders?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Jadi Imaging Holdings Berhad

What Is Jadi Imaging Holdings Berhad's Debt?

As you can see below, Jadi Imaging Holdings Berhad had RM7.17m of debt at December 2023, down from RM11.7m a year prior. However, it also had RM5.76m in cash, and so its net debt is RM1.41m.

How Healthy Is Jadi Imaging Holdings Berhad's Balance Sheet?

The latest balance sheet data shows that Jadi Imaging Holdings Berhad had liabilities of RM14.0m due within a year, and liabilities of RM11.3m falling due after that. On the other hand, it had cash of RM5.76m and RM25.8m worth of receivables due within a year. So it can boast RM6.29m more liquid assets than total liabilities.

This surplus suggests that Jadi Imaging Holdings Berhad has a conservative balance sheet, and could probably eliminate its debt without much difficulty. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Jadi Imaging Holdings 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.

Over 12 months, Jadi Imaging Holdings Berhad made a loss at the EBIT level, and saw its revenue drop to RM25m, which is a fall of 32%. To be frank that doesn't bode well.

Caveat Emptor

While Jadi Imaging Holdings Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping RM24m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Jadi Imaging Holdings Berhad (of which 2 are a bit unpleasant!) 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. 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.