Does Woosu AMSLtd (KOSDAQ:066590) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that Woosu AMS Co.,Ltd. (KOSDAQ:066590) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Woosu AMSLtd

What Is Woosu AMSLtd's Debt?

As you can see below, at the end of December 2020, Woosu AMSLtd had ₩94.2b of debt, up from ₩72.4b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩14.5b, its net debt is less, at about ₩79.7b.

A Look At Woosu AMSLtd's Liabilities

We can see from the most recent balance sheet that Woosu AMSLtd had liabilities of ₩139.4b falling due within a year, and liabilities of ₩19.9b due beyond that. Offsetting this, it had ₩14.5b in cash and ₩39.9b in receivables that were due within 12 months. So its liabilities total ₩104.9b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Woosu AMSLtd has a market capitalization of ₩209.6b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Woosu AMSLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Woosu AMSLtd made a loss at the EBIT level, and saw its revenue drop to ₩229b, which is a fall of 9.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Woosu AMSLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩6.3b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩8.0b of cash over the last year. So to be blunt we think it is risky. 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 Woosu AMSLtd has 4 warning signs (and 2 which can't be ignored) we think you should know about.

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.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.