Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Jumia Technologies AG (NYSE:JMIA) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Jumia Technologies

What Is Jumia Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Jumia Technologies had US$3.28m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$147.4m in cash, so it actually has US$144.1m net cash.

How Healthy Is Jumia Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jumia Technologies had liabilities of US$122.9m due within 12 months and liabilities of US$5.90m due beyond that. Offsetting this, it had US$147.4m in cash and US$25.7m in receivables that were due within 12 months. So it actually has US$44.3m more liquid assets than total liabilities.

This surplus suggests that Jumia Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Jumia Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Jumia Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jumia Technologies had a loss before interest and tax, and actually shrunk its revenue by 5.2%, to US$206m. That's not what we would hope to see.

So How Risky Is Jumia Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Jumia Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$121m and booked a US$142m accounting loss. But at least it has US$144.1m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Jumia Technologies you should be aware of.

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.