We Think Edge FoundryLtd (KOSDAQ:105550) Has A Fair Chunk Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Edge Foundry Co.,Ltd (KOSDAQ:105550) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Edge FoundryLtd

How Much Debt Does Edge FoundryLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Edge FoundryLtd had ₩22.4b of debt in September 2024, down from ₩35.6b, one year before. However, it also had ₩3.19b in cash, and so its net debt is ₩19.2b.

How Strong Is Edge FoundryLtd's Balance Sheet?

According to the last reported balance sheet, Edge FoundryLtd had liabilities of ₩31.5b due within 12 months, and liabilities of ₩6.82b due beyond 12 months. Offsetting this, it had ₩3.19b in cash and ₩15.5b in receivables that were due within 12 months. So its liabilities total ₩19.6b more than the combination of its cash and short-term receivables.

Since publicly traded Edge FoundryLtd shares are worth a total of ₩211.8b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is Edge FoundryLtd'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, Edge FoundryLtd made a loss at the EBIT level, and saw its revenue drop to ₩36b, which is a fall of 4.8%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Edge FoundryLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩15b at the EBIT level. 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 ₩3.5b of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Edge FoundryLtd (2 can't be ignored) 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.