Despite Lacking Profits Jade Marvel Group Berhad (KLSE:JADEM) Seems To Be On Top Of Its Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Jade Marvel Group Berhad (KLSE:JADEM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Our analysis indicates that JADEM is potentially overvalued!

How Much Debt Does Jade Marvel Group Berhad Carry?

The image below, which you can click on for greater detail, shows that at June 2022 Jade Marvel Group Berhad had debt of RM8.68m, up from RM5.88m in one year. However, it also had RM7.70m in cash, and so its net debt is RM976.0k.

How Strong Is Jade Marvel Group Berhad's Balance Sheet?

According to the last reported balance sheet, Jade Marvel Group Berhad had liabilities of RM28.9m due within 12 months, and liabilities of RM9.66m due beyond 12 months. Offsetting these obligations, it had cash of RM7.70m as well as receivables valued at RM56.0m due within 12 months. So it actually has RM25.2m more liquid assets than total liabilities.

This excess liquidity suggests that Jade Marvel Group Berhad is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. But either way, Jade Marvel Group Berhad has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Jade Marvel Group Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Jade Marvel Group Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 53%, to RM40m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Jade Marvel Group Berhad still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at RM478k. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Jade Marvel Group Berhad (of which 3 are a bit concerning!) you should know about.

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.