Does Jiin Yeeh Ding Enterprises (GTSM:8390) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Jiin Yeeh Ding Enterprises Corp. (GTSM:8390) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Jiin Yeeh Ding Enterprises

What Is Jiin Yeeh Ding Enterprises's Net Debt?

The image below, which you can click on for greater detail, shows that Jiin Yeeh Ding Enterprises had debt of NT$523.8m at the end of September 2020, a reduction from NT$782.5m over a year. But it also has NT$892.3m in cash to offset that, meaning it has NT$368.4m net cash.

How Strong Is Jiin Yeeh Ding Enterprises' Balance Sheet?

According to the last reported balance sheet, Jiin Yeeh Ding Enterprises had liabilities of NT$537.7m due within 12 months, and liabilities of NT$335.0m due beyond 12 months. Offsetting this, it had NT$892.3m in cash and NT$342.7m in receivables that were due within 12 months. So it actually has NT$362.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Jiin Yeeh Ding Enterprises could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Jiin Yeeh Ding Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Jiin Yeeh Ding Enterprises grew its EBIT by 100% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is Jiin Yeeh Ding Enterprises'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Jiin Yeeh Ding Enterprises has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Jiin Yeeh Ding Enterprises actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While it is always sensible to investigate a company's debt, in this case Jiin Yeeh Ding Enterprises has NT$368.4m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 144% of that EBIT to free cash flow, bringing in NT$276m. So is Jiin Yeeh Ding Enterprises's debt a risk? It doesn't seem so to us. 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. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Jiin Yeeh Ding Enterprises you should know about.

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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