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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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, JD.com, Inc. (NASDAQ:JD) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.
What Is JD.com's Net Debt?
The image below, which you can click on for greater detail, shows that at December 2024 JD.com had debt of CN¥64.1b, up from CN¥47.0b in one year. However, its balance sheet shows it holds CN¥234.0b in cash, so it actually has CN¥169.9b net cash.
How Strong Is JD.com's Balance Sheet?
The latest balance sheet data shows that JD.com had liabilities of CN¥299.5b due within a year, and liabilities of CN¥85.4b falling due after that. Offsetting these obligations, it had cash of CN¥234.0b as well as receivables valued at CN¥30.4b due within 12 months. So it has liabilities totalling CN¥120.5b more than its cash and near-term receivables, combined.
JD.com has a very large market capitalization of CN¥438.4b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, JD.com also has more cash than debt, so we're pretty confident it can manage its debt safely.
View our latest analysis for JD.com
In addition to that, we're happy to report that JD.com has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. 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 JD.com 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.