Does Jeong Moon Information (KOSDAQ:033050) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Jeong Moon Information. Co., Ltd (KOSDAQ:033050) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Jeong Moon Information

What Is Jeong Moon Information's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Jeong Moon Information had ₩16.8b of debt in December 2020, down from ₩21.2b, one year before. However, it also had ₩16.7b in cash, and so its net debt is ₩138.6m.

A Look At Jeong Moon Information's Liabilities

Zooming in on the latest balance sheet data, we can see that Jeong Moon Information had liabilities of ₩37.4b due within 12 months and liabilities of ₩4.39b due beyond that. On the other hand, it had cash of ₩16.7b and ₩20.1b worth of receivables due within a year. So it has liabilities totalling ₩5.06b more than its cash and near-term receivables, combined.

Given Jeong Moon Information has a market capitalization of ₩38.2b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Jeong Moon Information has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Jeong Moon Information 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.

Over 12 months, Jeong Moon Information made a loss at the EBIT level, and saw its revenue drop to ₩56b, which is a fall of 19%. That's not what we would hope to see.

Caveat Emptor

While Jeong Moon Information'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 ₩1.7b 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. We would feel better if it turned its trailing twelve month loss of ₩7.4b into a profit. In the meantime, we consider the stock very 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. Be aware that Jeong Moon Information is showing 2 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

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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