Jcontentree (KRX:036420) Has Debt But No Earnings; Should You Worry?

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 can see that Jcontentree corp. (KRX:036420) does use debt in its business. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Jcontentree

What Is Jcontentree's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Jcontentree had ₩628.0b of debt, an increase on ₩183.1b, over one year. On the flip side, it has ₩137.0b in cash leading to net debt of about ₩491.0b.

How Strong Is Jcontentree's Balance Sheet?

The latest balance sheet data shows that Jcontentree had liabilities of ₩645.2b due within a year, and liabilities of ₩566.4b falling due after that. On the other hand, it had cash of ₩137.0b and ₩145.6b worth of receivables due within a year. So it has liabilities totalling ₩929.0b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's ₩790.3b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Jcontentree can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Jcontentree made a loss at the EBIT level, and saw its revenue drop to ₩364b, which is a fall of 31%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Jcontentree's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₩57b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through ₩183b in negative free cash flow over the last year. That means it's on the risky side of things. 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. Be aware that Jcontentree is showing 2 warning signs in our investment analysis , you should know about...

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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