Is JGC Holdings (TSE:1963) Weighed On By Its Debt Load?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, JGC Holdings Corporation (TSE:1963) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. 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 JGC Holdings

What Is JGC Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that JGC Holdings had JP¥36.6b in debt in June 2024; about the same as the year before. But it also has JP¥367.0b in cash to offset that, meaning it has JP¥330.4b net cash.

How Healthy Is JGC Holdings' Balance Sheet?

The latest balance sheet data shows that JGC Holdings had liabilities of JP¥374.2b due within a year, and liabilities of JP¥55.2b falling due after that. Offsetting these obligations, it had cash of JP¥367.0b as well as receivables valued at JP¥209.9b due within 12 months. So it can boast JP¥147.4b more liquid assets than total liabilities.

This excess liquidity is a great indication that JGC Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, JGC Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if JGC Holdings can strengthen its balance sheet over time. 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 JGC Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to JP¥857b. With any luck the company will be able to grow its way to profitability.

So How Risky Is JGC Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that JGC Holdings had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of JP¥7.9b and booked a JP¥5.7b accounting loss. Given it only has net cash of JP¥330.4b, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, JGC Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with JGC Holdings , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.