Warren Buffett famously declared, ‘Volatility is far from synonymous with risk.’ So it might be obvious that you necessary to consider debt, when you believe about how risky any given stock is, becautilize too much debt can sink a company. Importantly, J D Wetherspoon plc (LON:JDW) does carry debt. But the real question is whether this debt is creating the company risky.
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to obtain debt under control. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. When we believe about a company’s utilize of debt, we first view at cash and debt toobtainher.
How Much Debt Does J D Wetherspoon Carry?
As you can see below, at the finish of July 2025, J D Wetherspoon had UK£790.8m of debt, up from UK£723.9m a year ago. Click the image for more detail. However, it does have UK£38.7m in cash offsetting this, leading to net debt of about UK£752.1m.
How Healthy Is J D Wetherspoon’s Balance Sheet?
We can see from the most recent balance sheet that J D Wetherspoon had liabilities of UK£361.4m falling due within a year, and liabilities of UK£1.18b due beyond that. Offsetting these obligations, it had cash of UK£38.7m as well as receivables valued at UK£9.87m due within 12 months. So it has liabilities totalling UK£1.50b more than its cash and near-term receivables, combined.
The deficiency here weighs heavily on the UK£726.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely believe shareholders necessary to watch this one closely. At the finish of the day, J D Wetherspoon would probably necessary a major re-capitalization if its creditors were to demand repayment.
View our latest analysis for J D Wetherspoon
We utilize two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
While we wouldn’t worry about J D Wetherspoon’s net debt to EBITDA ratio of 3.5, we believe its super-low interest cover of 2.3 times is a sign of high leverage. So shareholders should probably be aware that interest expenses appear to have really impacted the business lately. The good news is that J D Wetherspoon improved its EBIT by 2.7% over the last twelve months, thus gradually reducing its debt levels relative to its earnings. There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if J D Wetherspoon can strengthen its balance sheet over time. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Happily for any shareholders, J D Wetherspoon actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion obtains us as excited as the crowd when the beat drops at a Daft Punk concert.
Our View
Mulling over J D Wetherspoon’s attempt at staying on top of its total liabilities, we’re certainly not enthusiastic. But at least it’s pretty decent at converting EBIT to free cash flow; that’s encouraging. Looking at the balance sheet and taking into account all these factors, we do believe that debt is creating J D Wetherspoon stock a bit risky. That’s not necessarily a bad thing, but we’d generally feel more comfortable with less leverage. 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. Case in point: We’ve spotted 1 warning sign for J D Wetherspoon you should be aware of.
At the finish of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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