Is Jastrzebska Spólka Weglowa (WSE:JSW) weighed down by its debt?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Mostly, Jastrzebska Spolka Weglowa SA (WSE:JSW) is in debt. But the real question is whether this debt makes the business risky.
When is debt a problem?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, many companies use debt to finance their growth, without any negative consequences. The first thing to do when considering how much debt a business has is to look at its cash flow and debt together.
Discover our latest analysis for Jastrzebska Spólka Weglowa
What is the debt of Jastrzebska Spólka Weglowa?
As you can see below, at the end of September 2021, Jastrzebska Spólka Weglowa had a debt of 2.04 billion zł, compared to 799.5 million zł a year ago. Click on the image for more details. However, he also had 872.0 million zł in cash, and therefore his net debt is 1.17 billion zł.
How healthy is Jastrzebska Spólka Weglowa’s balance sheet?
According to the latest published balance sheet, Jastrzebska Spólka Weglowa had liabilities of 3.75 billion zł due within 12 months and liabilities of 3.85 billion zł over 12 months. In return, he had zł 872.0 million in cash and zł 1.24 billion in receivables due within 12 months. Thus, its liabilities total 5.49 billion zł more than the combination of its cash and short-term receivables.
That’s a mountain of leverage compared to its market capitalization of 6.34 billion zł. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet quickly. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether 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 analyst earnings forecast report interesting.
Over 12 months, Jastrzebska Spólka Weglowa reported revenue of 8.6 billion zł, a gain of 23%, although it reported no earnings before interest and taxes. With a little luck, the company will be able to progress towards profitability.
Despite the growth in turnover, Jastrzebska Spólka Weglowa still recorded a loss of earnings before interest and taxes (EBIT) over the past year. To be precise, the EBIT loss amounted to 412 million zł. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. So we think its balance sheet is a little stretched, but not beyond repair. However, it doesn’t help that he burned 1.0 billion zł worth of money in the last year. So suffice it to say that we consider the stock to be very risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Jastrzebska Spólka Weglowa you should know.
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.