These 4 Measures Indicate That Jaycorp Berhad (KLSE:JAYCORP) Is Using Debt Safely

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.' 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, Jaycorp Berhad (KLSE:JAYCORP) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Jaycorp Berhad's Net Debt?

As you can see below, Jaycorp Berhad had RM12.2m of debt, at January 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have RM82.1m in cash offsetting this, leading to net cash of RM69.9m.

How Healthy Is Jaycorp Berhad's Balance Sheet?

We can see from the most recent balance sheet that Jaycorp Berhad had liabilities of RM38.0m falling due within a year, and liabilities of RM7.97m due beyond that. Offsetting these obligations, it had cash of RM82.1m as well as receivables valued at RM36.6m due within 12 months. So it actually has RM72.7m more liquid assets than total liabilities.

This luscious liquidity implies that Jaycorp Berhad's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Jaycorp Berhad boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Jaycorp Berhad

It is just as well that Jaycorp Berhad's load is not too heavy, because its EBIT was down 42% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. 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 Jaycorp 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Jaycorp 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, Jaycorp Berhad recorded free cash flow worth a fulsome 96% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Jaycorp Berhad has RM69.9m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RM12m, being 96% of its EBIT. So we don't think Jaycorp Berhad's use of debt is risky. 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 Jaycorp Berhad (of which 1 is a bit concerning!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.