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- KOSDAQ:A204270
Is JNTC (KOSDAQ:204270) A Risky Investment?
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 JNTC Co., Ltd. (KOSDAQ:204270) does have debt on its balance sheet. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for JNTC
What Is JNTC's Net Debt?
The image below, which you can click on for greater detail, shows that JNTC had debt of ₩50.0b at the end of September 2020, a reduction from ₩85.1b over a year. However, it does have ₩181.1b in cash offsetting this, leading to net cash of ₩131.1b.
How Strong Is JNTC's Balance Sheet?
The latest balance sheet data shows that JNTC had liabilities of ₩67.5b due within a year, and liabilities of ₩30.3b falling due after that. Offsetting this, it had ₩181.1b in cash and ₩55.2b in receivables that were due within 12 months. So it can boast ₩138.7b more liquid assets than total liabilities.
This excess liquidity suggests that JNTC is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that JNTC has more cash than debt is arguably a good indication that it can manage its debt safely.
In addition to that, we're happy to report that JNTC has boosted its EBIT by 53%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine JNTC's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. JNTC 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. Happily for any shareholders, JNTC actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.
Summing up
While it is always sensible to investigate a company's debt, in this case JNTC has ₩131.1b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 115% of that EBIT to free cash flow, bringing in ₩155b. The bottom line is that we do not find JNTC's debt levels at all concerning. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for JNTC you should be aware of.
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:A204270
JNTC
Provides connector, hinge, and tempered glass products in South Korea.
Exceptional growth potential with mediocre balance sheet.