Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, JASTECH, Ltd. (KOSDAQ:090470) does carry debt. But the real question is whether this debt is making the company risky.
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. 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. 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.
View our latest analysis for JASTECH
What Is JASTECH's Net Debt?
The image below, which you can click on for greater detail, shows that at September 2020 JASTECH had debt of ₩20.6b, up from ₩9.91b in one year. However, it also had ₩12.2b in cash, and so its net debt is ₩8.39b.
A Look At JASTECH's Liabilities
Zooming in on the latest balance sheet data, we can see that JASTECH had liabilities of ₩30.9b due within 12 months and liabilities of ₩1.08b due beyond that. Offsetting these obligations, it had cash of ₩12.2b as well as receivables valued at ₩23.9b due within 12 months. So it can boast ₩4.17b more liquid assets than total liabilities.
This surplus suggests that JASTECH has a conservative balance sheet, and could probably eliminate its debt without much difficulty. The balance sheet is clearly the area to focus on when you are analysing debt. But it is JASTECH'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 JASTECH wasn't profitable at an EBIT level, but managed to grow its revenue by 4.4%, to ₩131b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Importantly, JASTECH had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩6.9b at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. 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 JASTECH is showing 1 warning sign in our investment analysis , you should know about...
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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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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About KOSDAQ:A090470
Excellent balance sheet and overvalued.
