Is JOYMAXLtd (KOSDAQ:101730) Using Debt Sensibly?

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 JOYMAX Co.,Ltd. (KOSDAQ:101730) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 JOYMAXLtd

How Much Debt Does JOYMAXLtd Carry?

As you can see below, at the end of September 2020, JOYMAXLtd had ₩5.00b of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩11.1b in cash, so it actually has ₩6.08b net cash.

How Healthy Is JOYMAXLtd's Balance Sheet?

According to the last reported balance sheet, JOYMAXLtd had liabilities of ₩11.6b due within 12 months, and liabilities of ₩223.3m due beyond 12 months. Offsetting these obligations, it had cash of ₩11.1b as well as receivables valued at ₩4.33b due within 12 months. So it actually has ₩3.61b more liquid assets than total liabilities.

This short term liquidity is a sign that JOYMAXLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that JOYMAXLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since JOYMAXLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year JOYMAXLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 23%, to ₩36b. With any luck the company will be able to grow its way to profitability.

So How Risky Is JOYMAXLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year JOYMAXLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩2.7b of cash and made a loss of ₩9.4b. However, it has net cash of ₩6.08b, so it has a bit of time before it will need more capital. JOYMAXLtd's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for JOYMAXLtd you should be aware of, and 1 of them makes us a bit uncomfortable.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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