Seoyon Topmetal (KOSDAQ:019770) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Seoyon Topmetal Co., Ltd. (KOSDAQ:019770) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Seoyon Topmetal

What Is Seoyon Topmetal's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Seoyon Topmetal had debt of ₩12.0b, up from ₩9.94b in one year. But on the other hand it also has ₩12.1b in cash, leading to a ₩104.3m net cash position.

A Look At Seoyon Topmetal's Liabilities

Zooming in on the latest balance sheet data, we can see that Seoyon Topmetal had liabilities of ₩60.5b due within 12 months and liabilities of ₩930.4m due beyond that. On the other hand, it had cash of ₩12.1b and ₩47.2b worth of receivables due within a year. So its liabilities total ₩2.15b more than the combination of its cash and short-term receivables.

Given Seoyon Topmetal has a market capitalization of ₩46.9b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Seoyon Topmetal also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that Seoyon Topmetal grew its EBIT by 151% over twelve months. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Seoyon Topmetal's earnings that will influence how the balance sheet holds up in the future. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Seoyon Topmetal may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Seoyon Topmetal actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Seoyon Topmetal has ₩104.3m in net cash. And it impressed us with free cash flow of ₩6.6b, being 178% of its EBIT. So is Seoyon Topmetal's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Seoyon Topmetal has 2 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.