Would Unick (KOSDAQ:011320) Be Better Off With Less Debt?

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, Unick Corporation (KOSDAQ:011320) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Unick

How Much Debt Does Unick Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Unick had debt of ₩70.3b, up from ₩65.4b in one year. However, it does have ₩31.9b in cash offsetting this, leading to net debt of about ₩38.4b.

How Healthy Is Unick's Balance Sheet?

According to the last reported balance sheet, Unick had liabilities of ₩95.6b due within 12 months, and liabilities of ₩15.2b due beyond 12 months. On the other hand, it had cash of ₩31.9b and ₩34.5b worth of receivables due within a year. So it has liabilities totalling ₩44.3b more than its cash and near-term receivables, combined.

Unick has a market capitalization of ₩180.1b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Unick will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Unick had a loss before interest and tax, and actually shrunk its revenue by 2.1%, to ₩212b. We would much prefer see growth.

Caveat Emptor

Importantly, Unick had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩1.8b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩2.3b of cash over the last year. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Unick (2 don't sit too well with us!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. 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.
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