We Think Ji-Haw IndustrialLtd (TWSE:3011) Has A Fair Chunk Of Debt

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 Ji-Haw Industrial Co.,Ltd. (TWSE:3011) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Ji-Haw IndustrialLtd

How Much Debt Does Ji-Haw IndustrialLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Ji-Haw IndustrialLtd had NT$568.2m of debt, an increase on NT$100.0m, over one year. On the flip side, it has NT$336.9m in cash leading to net debt of about NT$231.3m.

How Healthy Is Ji-Haw IndustrialLtd's Balance Sheet?

According to the last reported balance sheet, Ji-Haw IndustrialLtd had liabilities of NT$941.5m due within 12 months, and liabilities of NT$251.8m due beyond 12 months. On the other hand, it had cash of NT$336.9m and NT$441.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$414.5m.

Given Ji-Haw IndustrialLtd has a market capitalization of NT$2.19b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Ji-Haw IndustrialLtd'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 Ji-Haw IndustrialLtd's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, Ji-Haw IndustrialLtd had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping NT$239m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled NT$238m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Ji-Haw IndustrialLtd (of which 1 can't be ignored!) you should know about.

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.