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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 JD.com, Inc. (NASDAQ:JD) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for JD.com
What Is JD.com's Net Debt?
As you can see below, at the end of September 2024, JD.com had CN¥63.5b of debt, up from CN¥46.5b a year ago. Click the image for more detail. But it also has CN¥190.9b in cash to offset that, meaning it has CN¥127.4b net cash.
How Healthy Is JD.com's Balance Sheet?
According to the last reported balance sheet, JD.com had liabilities of CN¥265.6b due within 12 months, and liabilities of CN¥81.3b due beyond 12 months. On the other hand, it had cash of CN¥190.9b and CN¥22.9b worth of receivables due within a year. So its liabilities total CN¥133.0b more than the combination of its cash and short-term receivables.
JD.com has a very large market capitalization of CN¥445.8b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, JD.com boasts net cash, so it's fair to say it does not have a heavy debt load!
In addition to that, we're happy to report that JD.com has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine JD.com'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.