Is Kumpulan Jetson Berhad (KLSE: JETSON) using too much debt?
Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. ” So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. Above all, Kumpulan Jetson Berhad (KLSE: JETSON) is in debt. But does this debt concern shareholders?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for Kumpulan Jetson Berhad
What is the net debt of Kumpulan Jetson Berhad?
The image below, which you can click for more details, shows that Kumpulan Jetson Berhad had a debt of RM 56.4 million at the end of June 2021, a reduction from RM 64.1 million on a year. However, he also had RM7.04 million in cash, so his net debt is RM49.4 million.
How healthy is Kumpulan Jetson Berhad’s record?
We can see from the most recent balance sheet that Kumpulan Jetson Berhad had liabilities of RM 128.8 million due within one year and liabilities of RM 29.8 million due beyond. In return, he had RM7.04 million in cash and RM97.2 million in receivables due within 12 months. So he has a liability totaling RM 54.4 million more than his cash and short-term receivables combined.
While that might sound like a lot, it’s not that bad since Kumpulan Jetson Berhad has a market cap of RM93.1million, and could therefore likely strengthen his balance sheet by raising capital if needed. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of Kumpulan Jetson Berhad that will influence the balance sheet in the future. So if you want to know more about its profits, it may be worth checking out this chart of its long term profit trend.
In the past year, Kumpulan Jetson Berhad was not profitable at EBIT level, but managed to increase its turnover by 33%, to RM195 million. Hopefully the business will be able to move towards profitability.
Despite the growth in turnover, Kumpulan Jetson Berhad still recorded a loss of profit before interest and taxes (EBIT) in the past year. Indeed, he lost RM32k at EBIT level. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. We therefore believe that its record is a bit strained, but not irreparable. Another cause for caution is that we have purged 215k RM of negative free cash flow over the last twelve months. So, to be frank, we think it’s risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 3 warning signs for Kumpulan Jetson Berhad which you should know before investing here.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
If you are looking to trade a wide range of investments, open an account with the cheapest platform * approved by professionals, Interactive brokers. Their clients from more than 200 countries and territories trade stocks, options, futures, currencies, bonds and funds around the world from a single integrated account. Promoted
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.