Is JiransecurityLtd (KOSDAQ:208350) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Jiransecurity Co.,Ltd (KOSDAQ:208350) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for JiransecurityLtd

How Much Debt Does JiransecurityLtd Carry?

The chart below, which you can click on for greater detail, shows that JiransecurityLtd had ₩6.68b in debt in September 2020; about the same as the year before. However, its balance sheet shows it holds ₩35.1b in cash, so it actually has ₩28.4b net cash.

A Look At JiransecurityLtd's Liabilities

The latest balance sheet data shows that JiransecurityLtd had liabilities of ₩17.4b due within a year, and liabilities of ₩2.98b falling due after that. Offsetting this, it had ₩35.1b in cash and ₩5.05b in receivables that were due within 12 months. So it can boast ₩19.8b more liquid assets than total liabilities.

This excess liquidity is a great indication that JiransecurityLtd's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that JiransecurityLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is JiransecurityLtd'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, JiransecurityLtd made a loss at the EBIT level, and saw its revenue drop to ₩58b, which is a fall of 3.3%. That's not what we would hope to see.

So How Risky Is JiransecurityLtd?

While JiransecurityLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₩624m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for JiransecurityLtd 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. 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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