Is Jade Marvel Group Berhad (KLSE:JADEM) A Risky Investment?

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.' 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. We can see that Jade Marvel Group Berhad (KLSE:JADEM) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Jade Marvel Group Berhad

What Is Jade Marvel Group Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Jade Marvel Group Berhad had RM9.32m of debt, an increase on RM8.29m, over one year. But on the other hand it also has RM25.4m in cash, leading to a RM16.1m net cash position.

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

Zooming in on the latest balance sheet data, we can see that Jade Marvel Group Berhad had liabilities of RM21.1m due within 12 months and liabilities of RM9.64m due beyond that. On the other hand, it had cash of RM25.4m and RM47.0m worth of receivables due within a year. So it actually has RM41.7m more liquid assets than total liabilities.

This luscious liquidity implies that Jade Marvel Group 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. Simply put, the fact that Jade Marvel Group Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. 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 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.

Over 12 months, Jade Marvel Group Berhad reported revenue of RM40m, which is a gain of 45%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Jade Marvel Group Berhad?

While Jade Marvel Group Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM2.1m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We think its revenue growth of 45% is a good sign. We'd see further strong growth as an optimistic indication. 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. To that end, you should learn about the 4 warning signs we've spotted with Jade Marvel Group Berhad (including 1 which doesn't sit too well with us) .

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.