Is Jenscare Scientific (HKG:9877) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that Jenscare Scientific Co., Ltd. (HKG:9877) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Jenscare Scientific's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Jenscare Scientific had debt of CN¥60.3m, up from CN¥40.7m in one year. However, it does have CN¥622.8m in cash offsetting this, leading to net cash of CN¥562.5m.

How Healthy Is Jenscare Scientific's Balance Sheet?

The latest balance sheet data shows that Jenscare Scientific had liabilities of CN¥64.2m due within a year, and liabilities of CN¥46.4m falling due after that. Offsetting this, it had CN¥622.8m in cash and CN¥9.31m in receivables that were due within 12 months. So it actually has CN¥521.5m more liquid assets than total liabilities.

It's good to see that Jenscare Scientific has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Jenscare Scientific 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 Jenscare Scientific's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Jenscare Scientific

Since Jenscare Scientific doesn't have significant operating revenue, shareholders must hope it'll ramp sales of its new medical tech as soon as possible.

So How Risky Is Jenscare Scientific?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Jenscare Scientific had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥289m of cash and made a loss of CN¥178m. However, it has net cash of CN¥562.5m, so it has a bit of time before it will need more capital. 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. Case in point: We've spotted 1 warning sign for Jenscare Scientific you should be aware of.

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.