Is Jushri Technologies (SZSE:300762) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Jushri Technologies, INC. (SZSE:300762) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Jushri Technologies

What Is Jushri Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Jushri Technologies had CN¥718.6m of debt, an increase on CN¥340.2m, over one year. However, it does have CN¥1.35b in cash offsetting this, leading to net cash of CN¥629.3m.

How Strong Is Jushri Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jushri Technologies had liabilities of CN¥1.08b due within 12 months and liabilities of CN¥45.5m due beyond that. Offsetting these obligations, it had cash of CN¥1.35b as well as receivables valued at CN¥1.06b due within 12 months. So it actually has CN¥1.28b more liquid assets than total liabilities.

This short term liquidity is a sign that Jushri Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Jushri Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jushri Technologies'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.

Over 12 months, Jushri Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥272m, which is a fall of 25%. That makes us nervous, to say the least.

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. And over the same period it saw negative free cash outflow of CN¥394m and booked a CN¥227m accounting loss. Given it only has net cash of CN¥629.3m, the company may need to raise more capital if it doesn't reach break-even soon. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Jushri Technologies you should know about.

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.