Jeil Steel Mfg (KOSDAQ:023440) Is Making Moderate Use Of Debt

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 Jeil Steel Mfg Co., Ltd. (KOSDAQ:023440) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Jeil Steel Mfg

What Is Jeil Steel Mfg's Net Debt?

As you can see below, at the end of December 2020, Jeil Steel Mfg had ₩26.3b of debt, up from ₩12.7b a year ago. Click the image for more detail. On the flip side, it has ₩13.6b in cash leading to net debt of about ₩12.8b.

A Look At Jeil Steel Mfg's Liabilities

According to the last reported balance sheet, Jeil Steel Mfg had liabilities of ₩30.1b due within 12 months, and liabilities of ₩7.41b due beyond 12 months. Offsetting these obligations, it had cash of ₩13.6b as well as receivables valued at ₩4.86b due within 12 months. So its liabilities total ₩19.1b more than the combination of its cash and short-term receivables.

Of course, Jeil Steel Mfg has a market capitalization of ₩119.9b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jeil Steel Mfg'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.

In the last year Jeil Steel Mfg wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to ₩38b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Jeil Steel Mfg still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩3.6b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩5.6b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Jeil Steel Mfg (of which 1 is a bit unpleasant!) you should know about.

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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