Is Jastrzebska Spólka Weglowa (WSE:JSW) Weighed On By Its Debt Load?

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. Importantly, Jastrzebska Spólka Weglowa S.A. (WSE:JSW) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at 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 September 2021, Jastrzebska Spólka Weglowa had zł2.04b of debt, up from zł799.5m a year ago. Click the image for more detail. However, it also had zł872.0m in cash, and so its net debt is zł1.17b.

How Healthy Is Jastrzebska Spólka Weglowa's Balance Sheet?

According to the last reported balance sheet, Jastrzebska Spólka Weglowa had liabilities of zł3.75b due within 12 months, and liabilities of zł3.85b due beyond 12 months. Offsetting this, it had zł872.0m in cash and zł1.24b in receivables that were due within 12 months. So its liabilities total zł5.49b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of zł6.34b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Jastrzebska Spólka Weglowa can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Jastrzebska Spólka Weglowa reported revenue of zł8.6b, which is a gain of 23%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Jastrzebska Spólka Weglowa still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at zł412m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through zł1.0b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. 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 2 warning signs for Jastrzebska Spólka Weglowa 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.