Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Jushri Technologies, INC. (SZSE:300762) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 Jushri Technologies's Net Debt?

As you can see below, at the end of March 2024, Jushri Technologies had CN¥675.5m of debt, up from CN¥358.2m a year ago. Click the image for more detail. However, it does have CN¥1.41b in cash offsetting this, leading to net cash of CN¥731.0m.

How Healthy Is Jushri Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jushri Technologies had liabilities of CN¥981.4m due within 12 months and liabilities of CN¥41.5m due beyond that. On the other hand, it had cash of CN¥1.41b and CN¥1.08b worth of receivables due within a year. So it actually has CN¥1.46b more liquid assets than total liabilities.

This surplus suggests that Jushri Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Jushri Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jushri Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Jushri Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥304m, which is a fall of 34%. To be frank that doesn't bode well.

So How Risky Is Jushri Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Jushri Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥358m and booked a CN¥192m accounting loss. With only CN¥731.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Jushri Technologies that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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