Is Jushri Technologies (SZSE:300762) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Jushri Technologies, INC. (SZSE:300762) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

See our latest analysis for Jushri Technologies

What Is Jushri Technologies's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Jushri Technologies had debt of CN¥675.5m, up from CN¥358.2m in one year. But on the other hand it also has CN¥1.41b in cash, leading to a CN¥731.0m net cash position.

How Healthy Is Jushri Technologies' Balance Sheet?

We can see from the most recent balance sheet that Jushri Technologies had liabilities of CN¥981.4m falling due within a year, and liabilities of CN¥41.5m due beyond that. Offsetting these obligations, it had cash of CN¥1.41b as well as receivables valued at CN¥1.08b due within 12 months. So it actually has CN¥1.46b 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. 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.

In the last year Jushri Technologies had a loss before interest and tax, and actually shrunk its revenue by 34%, to CN¥304m. To be frank that doesn't bode well.

So How Risky Is Jushri Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Jushri Technologies had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥358m of cash and made a loss of CN¥192m. Given it only has net cash of CN¥731.0m, 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Jushri Technologies that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.