Is Joe Holding Berhad (KLSE:JOE) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Joe Holding Berhad (KLSE:JOE) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Joe Holding Berhad

What Is Joe Holding Berhad's Debt?

As you can see below, at the end of June 2024, Joe Holding Berhad had RM65.0m of debt, up from RM60.2m a year ago. Click the image for more detail. But on the other hand it also has RM101.5m in cash, leading to a RM36.4m net cash position.

How Healthy Is Joe Holding Berhad's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Joe Holding Berhad had liabilities of RM69.7m due within 12 months and liabilities of RM8.26m due beyond that. Offsetting this, it had RM101.5m in cash and RM11.2m in receivables that were due within 12 months. So it actually has RM34.7m more liquid assets than total liabilities.

This excess liquidity is a great indication that Joe Holding Berhad's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Joe Holding Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Joe Holding Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Joe Holding Berhad wasn't profitable at an EBIT level, but managed to grow its revenue by 7.8%, to RM22m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Joe Holding Berhad?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Joe Holding Berhad had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RM9.2m and booked a RM12m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of RM36.4m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. We've identified 3 warning signs with Joe Holding Berhad (at least 1 which is significant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.