Does Jastrzebska Spólka Weglowa (WSE:JSW) Have A Healthy Balance Sheet?

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. As with many other companies Jastrzebska Spólka Weglowa S.A. (WSE:JSW) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Jastrzebska Spólka Weglowa

What Is Jastrzebska Spólka Weglowa's Debt?

As you can see below, at the end of March 2021, Jastrzebska Spólka Weglowa had zł2.03b of debt, up from zł820.1m a year ago. Click the image for more detail. However, it also had zł1.27b in cash, and so its net debt is zł760.8m.

How Healthy Is Jastrzebska Spólka Weglowa's Balance Sheet?

We can see from the most recent balance sheet that Jastrzebska Spólka Weglowa had liabilities of zł3.77b falling due within a year, and liabilities of zł4.01b due beyond that. On the other hand, it had cash of zł1.27b and zł995.4m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł5.52b.

Given this deficit is actually higher than the company's market capitalization of zł4.26b, we think shareholders really should watch Jastrzebska Spólka Weglowa's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jastrzebska Spólka Weglowa'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.

Over 12 months, Jastrzebska Spólka Weglowa made a loss at the EBIT level, and saw its revenue drop to zł7.0b, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

Not only did Jastrzebska Spólka Weglowa's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping zł1.4b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of zł1.1b over the last twelve months. That means it's on the risky side of things. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jastrzebska Spólka Weglowa's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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