Does Jeil TechnosLtd (KOSDAQ:038010) Have A Healthy Balance Sheet?

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. We can see that Jeil Technos Co.,Ltd (KOSDAQ:038010) does use debt in its business. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Jeil TechnosLtd

How Much Debt Does Jeil TechnosLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Jeil TechnosLtd had ₩37.0b of debt, an increase on ₩33.2b, over one year. However, it also had ₩18.4b in cash, and so its net debt is ₩18.6b.

How Strong Is Jeil TechnosLtd's Balance Sheet?

According to the last reported balance sheet, Jeil TechnosLtd had liabilities of ₩68.7b due within 12 months, and liabilities of ₩13.0b due beyond 12 months. Offsetting this, it had ₩18.4b in cash and ₩13.0b in receivables that were due within 12 months. So its liabilities total ₩50.3b more than the combination of its cash and short-term receivables.

Jeil TechnosLtd has a market capitalization of ₩87.7b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Jeil TechnosLtd'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 TechnosLtd had a loss before interest and tax, and actually shrunk its revenue by 18%, to ₩136b. That's not what we would hope to see.

Caveat Emptor

While Jeil TechnosLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩2.5b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₩4.4b. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 5 warning signs with Jeil TechnosLtd (at least 2 which are a bit unpleasant) , 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. 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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