We Think JonDeTech Sensors (STO:JDT) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that JonDeTech Sensors AB (publ) (STO:JDT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for JonDeTech Sensors

What Is JonDeTech Sensors's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 JonDeTech Sensors had kr22.0m of debt, an increase on none, over one year. However, because it has a cash reserve of kr11.1m, its net debt is less, at about kr10.9m.

How Strong Is JonDeTech Sensors' Balance Sheet?

The latest balance sheet data shows that JonDeTech Sensors had liabilities of kr34.0m due within a year, and liabilities of -kr1.0k falling due after that. Offsetting these obligations, it had cash of kr11.1m as well as receivables valued at kr4.39m due within 12 months. So it has liabilities totalling kr18.5m more than its cash and near-term receivables, combined.

Given JonDeTech Sensors has a market capitalization of kr121.1m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year JonDeTech Sensors had a loss before interest and tax, and actually shrunk its revenue by 22%, to kr8.2m. That makes us nervous, to say the least.

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. Its EBIT loss was a whopping kr38m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr48m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example JonDeTech Sensors has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

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.