Is Jeil PharmaceuticalLtd (KRX:271980) A Risky Investment?

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.' 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 Pharmaceutical Co.,Ltd (KRX:271980) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Jeil PharmaceuticalLtd

What Is Jeil PharmaceuticalLtd's Net Debt?

As you can see below, Jeil PharmaceuticalLtd had ₩68.3b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₩34.3b in cash, and so its net debt is ₩34.0b.

How Strong Is Jeil PharmaceuticalLtd's Balance Sheet?

We can see from the most recent balance sheet that Jeil PharmaceuticalLtd had liabilities of ₩291.9b falling due within a year, and liabilities of ₩12.7b due beyond that. On the other hand, it had cash of ₩34.3b and ₩165.8b worth of receivables due within a year. So it has liabilities totalling ₩104.4b more than its cash and near-term receivables, combined.

Jeil PharmaceuticalLtd has a market capitalization of ₩183.5b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Jeil PharmaceuticalLtd'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.

Over 12 months, Jeil PharmaceuticalLtd made a loss at the EBIT level, and saw its revenue drop to ₩700b, which is a fall of 2.3%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Jeil PharmaceuticalLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₩21b 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. Another cause for caution is that is bled ₩11b in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. To that end, you should be aware of the 1 warning sign we've spotted with Jeil PharmaceuticalLtd .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.