Is JCH Systems (KOSDAQ:033320) A Risky Investment?

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 can see that JCH Systems, Inc. (KOSDAQ:033320) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is JCH Systems's Debt?

As you can see below, JCH Systems had ₩8.85b of debt at March 2025, down from ₩15.8b a year prior. But on the other hand it also has ₩40.0b in cash, leading to a ₩31.2b net cash position.

A Look At JCH Systems' Liabilities

Zooming in on the latest balance sheet data, we can see that JCH Systems had liabilities of ₩47.5b due within 12 months and liabilities of ₩4.89b due beyond that. On the other hand, it had cash of ₩40.0b and ₩34.4b worth of receivables due within a year. So it actually has ₩22.0b more liquid assets than total liabilities.

This surplus suggests that JCH Systems is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that JCH Systems has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for JCH Systems

Although JCH Systems made a loss at the EBIT level, last year, it was also good to see that it generated ₩5.1b in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since JCH Systems will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. JCH Systems may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, JCH Systems actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that JCH Systems has net cash of ₩31.2b, as well as more liquid assets than liabilities. The cherry on top was that in converted 332% of that EBIT to free cash flow, bringing in ₩17b. So we don't think JCH Systems's use of debt 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. We've identified 2 warning signs with JCH Systems (at least 1 which is concerning) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.