JWIPC Technology (SZSE:001339) Could Easily Take On More 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 can see that JWIPC Technology Co., Ltd. (SZSE:001339) does use debt in its business. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for JWIPC Technology

How Much Debt Does JWIPC Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 JWIPC Technology had CN¥180.1m of debt, an increase on CN¥101.1m, over one year. However, its balance sheet shows it holds CN¥1.74b in cash, so it actually has CN¥1.56b net cash.

How Healthy Is JWIPC Technology's Balance Sheet?

We can see from the most recent balance sheet that JWIPC Technology had liabilities of CN¥2.64b falling due within a year, and liabilities of CN¥33.3m due beyond that. On the other hand, it had cash of CN¥1.74b and CN¥770.4m worth of receivables due within a year. So it has liabilities totalling CN¥162.3m more than its cash and near-term receivables, combined.

Having regard to JWIPC Technology's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥9.24b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, JWIPC Technology also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that JWIPC Technology grew its EBIT by 581% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine JWIPC Technology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While JWIPC Technology has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, JWIPC Technology produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about JWIPC Technology's liabilities, but we can be reassured by the fact it has has net cash of CN¥1.56b. And it impressed us with its EBIT growth of 581% over the last year. So is JWIPC Technology's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of JWIPC Technology's earnings per share history for free.

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.