We Think KJTS Group Berhad (KLSE:KJTS) Can Stay On Top Of Its 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. Importantly, KJTS Group Berhad (KLSE:KJTS) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is KJTS Group Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 KJTS Group Berhad had RM7.11m of debt, an increase on RM3.78m, over one year. However, its balance sheet shows it holds RM58.6m in cash, so it actually has RM51.5m net cash.

A Look At KJTS Group Berhad's Liabilities

According to the last reported balance sheet, KJTS Group Berhad had liabilities of RM39.6m due within 12 months, and liabilities of RM7.38m due beyond 12 months. On the other hand, it had cash of RM58.6m and RM81.6m worth of receivables due within a year. So it can boast RM93.2m more liquid assets than total liabilities.

This short term liquidity is a sign that KJTS Group Berhad could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that KJTS 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 KJTS Group Berhad

The good news is that KJTS Group Berhad has increased its EBIT by 6.2% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine KJTS Group Berhad's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. KJTS Group Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, KJTS Group Berhad recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case KJTS Group Berhad has RM51.5m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 6.2% in the last twelve months. So we don't have any problem with KJTS Group Berhad's use of debt. 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, we've discovered 1 warning sign for KJTS Group Berhad that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.