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.' 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. Importantly, JS Global Lifestyle Company Limited (HKG:1691) does carry debt. But the real question is whether this debt is making the company risky.
We've discovered 2 warning signs about JS Global Lifestyle. View them for free.What Risk Does Debt Bring?
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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
What Is JS Global Lifestyle's Net Debt?
The image below, which you can click on for greater detail, shows that at December 2024 JS Global Lifestyle had debt of US$15.0m, up from none in one year. But on the other hand it also has US$438.6m in cash, leading to a US$423.6m net cash position.
How Strong Is JS Global Lifestyle's Balance Sheet?
We can see from the most recent balance sheet that JS Global Lifestyle had liabilities of US$772.3m falling due within a year, and liabilities of US$32.4m due beyond that. Offsetting these obligations, it had cash of US$438.6m as well as receivables valued at US$399.2m due within 12 months. So it can boast US$33.2m more liquid assets than total liabilities.
This short term liquidity is a sign that JS Global Lifestyle could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that JS Global Lifestyle has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if JS Global Lifestyle 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.
View our latest analysis for JS Global Lifestyle
Over 12 months, JS Global Lifestyle reported revenue of US$1.6b, which is a gain of 12%, 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 JS Global Lifestyle?
Although JS Global Lifestyle had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$6.2m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 2 warning signs for JS Global Lifestyle that you should be aware of.
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.