Is JCY International Berhad (KLSE:JCY) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies JCY International Berhad (KLSE:JCY) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for JCY International Berhad

What Is JCY International Berhad's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 JCY International Berhad had RM90.8m of debt, an increase on RM47.9m, over one year. However, its balance sheet shows it holds RM358.4m in cash, so it actually has RM267.6m net cash.

How Healthy Is JCY International Berhad's Balance Sheet?

According to the last reported balance sheet, JCY International Berhad had liabilities of RM243.0m due within 12 months, and liabilities of RM19.5m due beyond 12 months. On the other hand, it had cash of RM358.4m and RM247.2m worth of receivables due within a year. So it actually has RM343.1m more liquid assets than total liabilities.

This luscious liquidity implies that JCY International Berhad's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that JCY International Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since JCY International Berhad 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.

Over 12 months, JCY International Berhad reported revenue of RM1.1b, which is a gain of 6.5%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is JCY International Berhad?

While JCY International Berhad lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of RM4.4m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short 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. However, not all investment risk resides within the balance sheet - far from it. Be aware that JCY International Berhad is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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. 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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