Health Check: How Prudently Does Jushri Technologies (SZSE:300762) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Jushri Technologies, INC. (SZSE:300762) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Jushri Technologies

What Is Jushri Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Jushri Technologies had CN¥834.8m of debt, an increase on CN¥425.5m, over one year. However, its balance sheet shows it holds CN¥1.29b in cash, so it actually has CN¥457.5m net cash.

A Look At Jushri Technologies' Liabilities

According to the last reported balance sheet, Jushri Technologies had liabilities of CN¥990.0m due within 12 months, and liabilities of CN¥190.1m due beyond 12 months. Offsetting these obligations, it had cash of CN¥1.29b as well as receivables valued at CN¥1.05b due within 12 months. So it can boast CN¥1.16b more liquid assets than total liabilities.

This surplus suggests that Jushri Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Jushri 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 ultimately the future profitability of the business will decide if Jushri Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Jushri Technologies reported revenue of CN¥273m, which is a gain of 18%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Jushri Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Jushri Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥413m of cash and made a loss of CN¥218m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥457.5m. That means it could keep spending at its current rate for more than two years. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Jushri Technologies that you should be aware of before investing here.

At the end 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 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.