Here's Why JMC Electronics (TWSE:6552) Can Afford Some Debt

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. As with many other companies JMC Electronics Co., Ltd. (TWSE:6552) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for JMC Electronics

What Is JMC Electronics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that JMC Electronics had NT$1.26b of debt in June 2024, down from NT$1.51b, one year before. On the flip side, it has NT$638.0m in cash leading to net debt of about NT$623.0m.

A Look At JMC Electronics' Liabilities

According to the last reported balance sheet, JMC Electronics had liabilities of NT$1.31b due within 12 months, and liabilities of NT$437.6m due beyond 12 months. On the other hand, it had cash of NT$638.0m and NT$511.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$602.7m.

Since publicly traded JMC Electronics shares are worth a total of NT$3.59b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is JMC Electronics'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.

In the last year JMC Electronics wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to NT$2.0b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate JMC Electronics's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost NT$31m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of NT$300m and a profit of NT$78m. So one might argue that there's still a chance it can get things on the right track. 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. To that end, you should learn about the 2 warning signs we've spotted with JMC Electronics (including 1 which is significant) .

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.