Does JUSUNG ENGINEERINGLtd (KOSDAQ:036930) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that JUSUNG ENGINEERING Co.,Ltd. (KOSDAQ:036930) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for JUSUNG ENGINEERINGLtd

What Is JUSUNG ENGINEERINGLtd's Debt?

As you can see below, JUSUNG ENGINEERINGLtd had ₩45.0b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has ₩220.1b in cash, leading to a ₩175.1b net cash position.

How Strong Is JUSUNG ENGINEERINGLtd's Balance Sheet?

We can see from the most recent balance sheet that JUSUNG ENGINEERINGLtd had liabilities of ₩156.4b falling due within a year, and liabilities of ₩229.8b due beyond that. Offsetting these obligations, it had cash of ₩220.1b as well as receivables valued at ₩14.7b due within 12 months. So it has liabilities totalling ₩151.4b more than its cash and near-term receivables, combined.

Of course, JUSUNG ENGINEERINGLtd has a market capitalization of ₩1.17t, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, JUSUNG ENGINEERINGLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also good is that JUSUNG ENGINEERINGLtd grew its EBIT at 12% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if JUSUNG ENGINEERINGLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While JUSUNG ENGINEERINGLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, JUSUNG ENGINEERINGLtd recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While JUSUNG ENGINEERINGLtd does have more liabilities than liquid assets, it also has net cash of ₩175.1b. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in ₩116b. So is JUSUNG ENGINEERINGLtd's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in JUSUNG ENGINEERINGLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.