Is Jerash Holdings (US) (NASDAQ:JRSH) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Jerash Holdings (US), Inc. (NASDAQ:JRSH) does use debt in its business. But the more important question is: how much risk is that debt creating?

Our free stock report includes 2 warning signs investors should be aware of before investing in Jerash Holdings (US). Read for free now.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Jerash Holdings (US)'s Debt?

As you can see below, at the end of December 2024, Jerash Holdings (US) had US$4.97m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has US$13.2m in cash, leading to a US$8.25m net cash position.

How Strong Is Jerash Holdings (US)'s Balance Sheet?

According to the last reported balance sheet, Jerash Holdings (US) had liabilities of US$16.3m due within 12 months, and liabilities of US$344.4k due beyond 12 months. On the other hand, it had cash of US$13.2m and US$7.24m worth of receivables due within a year. So it actually has US$3.80m more liquid assets than total liabilities.

This short term liquidity is a sign that Jerash Holdings (US) could probably pay off its debt with ease, as its balance sheet is far from stretched. 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 it is future earnings, more than anything, that will determine Jerash Holdings (US)'s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Jerash Holdings (US)

Over 12 months, Jerash Holdings (US) reported revenue of US$138m, which is a gain of 16%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

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 in the last year Jerash Holdings (US) had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$7.9m and booked a US$3.8m accounting loss. But at least it has US$8.25m on the balance sheet to spend on growth, near-term. 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. For example Jerash Holdings (US) has 2 warning signs (and 1 which doesn't sit too well with us) we think 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.