Does Jerash Holdings (US) (NASDAQ:JRSH) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Jerash Holdings (US), Inc. (NASDAQ:JRSH) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Jerash Holdings (US)

How Much Debt Does Jerash Holdings (US) Carry?

The image below, which you can click on for greater detail, shows that Jerash Holdings (US) had debt of US$2.13m at the end of June 2024, a reduction from US$3.12m over a year. But it also has US$11.4m in cash to offset that, meaning it has US$9.24m net cash.

A Look At Jerash Holdings (US)'s Liabilities

Zooming in on the latest balance sheet data, we can see that Jerash Holdings (US) had liabilities of US$13.1m due within 12 months and liabilities of US$592.1k due beyond that. Offsetting these obligations, it had cash of US$11.4m as well as receivables valued at US$9.40m due within 12 months. So it actually has US$7.03m more liquid assets than total liabilities.

It's good to see that Jerash Holdings (US) has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Jerash Holdings (US) boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Jerash Holdings (US) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Jerash Holdings (US) had a loss before interest and tax, and actually shrunk its revenue by 11%, to US$123m. That's not what we would hope to see.

So How Risky Is Jerash Holdings (US)?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Jerash Holdings (US) lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$3.2m and booked a US$3.8m accounting loss. With only US$9.24m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Jerash Holdings (US) is showing 2 warning signs in our investment analysis , and 1 of those is significant...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.