NEOOTO (KOSDAQ:212560) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, NEOOTO CO., Ltd (KOSDAQ:212560) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

Check out our latest analysis for NEOOTO

What Is NEOOTO's Net Debt?

As you can see below, at the end of September 2024, NEOOTO had ₩27.0b of debt, up from ₩21.2b a year ago. Click the image for more detail. However, it does have ₩75.9b in cash offsetting this, leading to net cash of ₩48.9b.

A Look At NEOOTO's Liabilities

Zooming in on the latest balance sheet data, we can see that NEOOTO had liabilities of ₩75.1b due within 12 months and liabilities of ₩10.0b due beyond that. Offsetting this, it had ₩75.9b in cash and ₩28.2b in receivables that were due within 12 months. So it can boast ₩19.0b more liquid assets than total liabilities.

This surplus suggests that NEOOTO is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, NEOOTO boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, NEOOTO grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since NEOOTO 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. NEOOTO 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, NEOOTO 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 investigate a company's debt, in this case NEOOTO has ₩48.9b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 188% of that EBIT to free cash flow, bringing in ₩22b. When it comes to NEOOTO's debt, we sufficiently relaxed that our mind turns to the jacuzzi. 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 instance, we've identified 1 warning sign for NEOOTO that 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.