Is JLogo Holdings (HKG:8527) A Risky Investment?

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 JLogo Holdings Limited (HKG:8527) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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 JLogo Holdings

How Much Debt Does JLogo Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 JLogo Holdings had S$2.82m of debt, an increase on S$1.51m, over one year. However, it does have S$4.65m in cash offsetting this, leading to net cash of S$1.83m.

How Strong Is JLogo Holdings' Balance Sheet?

The latest balance sheet data shows that JLogo Holdings had liabilities of S$9.01m due within a year, and liabilities of S$4.61m falling due after that. Offsetting this, it had S$4.65m in cash and S$1.91m in receivables that were due within 12 months. So it has liabilities totalling S$7.06m more than its cash and near-term receivables, combined.

Given JLogo Holdings has a market capitalization of S$68.8m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, JLogo Holdings 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 JLogo Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year JLogo Holdings had a loss before interest and tax, and actually shrunk its revenue by 36%, to S$13m. That makes us nervous, to say the least.

So How Risky Is JLogo Holdings?

Although JLogo Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of S$4.1m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 JLogo Holdings has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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. 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.
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