We Think Jeil PharmaceuticalLtd (KRX:271980) Has A Fair Chunk Of Debt

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 the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.

See our latest analysis for Jeil PharmaceuticalLtd

What Is Jeil PharmaceuticalLtd's Debt?

The image below, which you can click on for greater detail, shows that Jeil PharmaceuticalLtd had debt of ₩71.2b at the end of September 2024, a reduction from ₩76.0b over a year. However, it also had ₩37.6b in cash, and so its net debt is ₩33.6b.

How Strong Is Jeil PharmaceuticalLtd's Balance Sheet?

We can see from the most recent balance sheet that Jeil PharmaceuticalLtd had liabilities of ₩296.5b falling due within a year, and liabilities of ₩12.9b due beyond that. On the other hand, it had cash of ₩37.6b and ₩166.2b worth of receivables due within a year. So its liabilities total ₩105.6b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Jeil PharmaceuticalLtd has a market capitalization of ₩197.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. 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.

In the last year Jeil PharmaceuticalLtd had a loss before interest and tax, and actually shrunk its revenue by 2.9%, to ₩698b. That's not what we would hope to see.

Caveat Emptor

Importantly, Jeil PharmaceuticalLtd had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩23b. 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. We would feel better if it turned its trailing twelve month loss of ₩36b into a profit. 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. For instance, we've identified 2 warning signs for Jeil PharmaceuticalLtd (1 doesn't sit too well with us) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.