Does JonDeTech Sensors (STO:JDT) Have A Healthy Balance Sheet?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies JonDeTech Sensors AB (publ) (STO:JDT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for JonDeTech Sensors

What Is JonDeTech Sensors's Debt?

As you can see below, at the end of March 2022, JonDeTech Sensors had kr22.0m of debt, up from none a year ago. Click the image for more detail. On the flip side, it has kr21.1m in cash leading to net debt of about kr890.0k.

How Healthy Is JonDeTech Sensors' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that JonDeTech Sensors had liabilities of kr31.8m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of kr21.1m as well as receivables valued at kr6.07m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr4.62m.

Given JonDeTech Sensors has a market capitalization of kr178.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, JonDeTech Sensors has virtually no net debt, 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 JonDeTech Sensors'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.

Over 12 months, JonDeTech Sensors made a loss at the EBIT level, and saw its revenue drop to kr9.3m, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

While JonDeTech Sensors's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable kr34m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through kr47m of cash over the last year. So in short it's a really risky stock. 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. Case in point: We've spotted 6 warning signs for JonDeTech Sensors you should be aware of, and 3 of them are a bit concerning.

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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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.