Does JINSUNG T.E.C (KOSDAQ:036890) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies JINSUNG T.E.C., Inc. (KOSDAQ:036890) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for JINSUNG T.E.C

What Is JINSUNG T.E.C's Debt?

As you can see below, at the end of September 2024, JINSUNG T.E.C had ₩91.4b of debt, up from ₩68.2b a year ago. Click the image for more detail. But on the other hand it also has ₩129.0b in cash, leading to a ₩37.6b net cash position.

How Healthy Is JINSUNG T.E.C's Balance Sheet?

The latest balance sheet data shows that JINSUNG T.E.C had liabilities of ₩165.2b due within a year, and liabilities of ₩18.2b falling due after that. Offsetting this, it had ₩129.0b in cash and ₩95.1b in receivables that were due within 12 months. So it actually has ₩40.7b more liquid assets than total liabilities.

This surplus suggests that JINSUNG T.E.C is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that JINSUNG T.E.C has more cash than debt is arguably a good indication that it can manage its debt safely.

In fact JINSUNG T.E.C's saving grace is its low debt levels, because its EBIT has tanked 62% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since JINSUNG T.E.C will need earnings to service that debt. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While JINSUNG T.E.C has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, JINSUNG T.E.C generated free cash flow amounting to a very robust 84% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case JINSUNG T.E.C has ₩37.6b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩35b, being 84% of its EBIT. So we don't have any problem with JINSUNG T.E.C's use of debt. 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. For example, we've discovered 2 warning signs for JINSUNG T.E.C that you should be aware of before investing here.

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. 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.