SMBEXEL (KRX:010580) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies SMBEXEL Company (KRX:010580) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for SMBEXEL

What Is SMBEXEL's Net Debt?

The image below, which you can click on for greater detail, shows that SMBEXEL had debt of ₩3.50b at the end of September 2024, a reduction from ₩5.50b over a year. But it also has ₩12.1b in cash to offset that, meaning it has ₩8.62b net cash.

A Look At SMBEXEL's Liabilities

We can see from the most recent balance sheet that SMBEXEL had liabilities of ₩28.1b falling due within a year, and liabilities of ₩9.90b due beyond that. On the other hand, it had cash of ₩12.1b and ₩14.4b worth of receivables due within a year. So its liabilities total ₩11.5b more than the combination of its cash and short-term receivables.

Given SMBEXEL has a market capitalization of ₩110.8b, 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. Despite its noteworthy liabilities, SMBEXEL boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is SMBEXEL'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.

In the last year SMBEXEL had a loss before interest and tax, and actually shrunk its revenue by 24%, to ₩161b. To be frank that doesn't bode well.

So How Risky Is SMBEXEL?

While SMBEXEL lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩6.9b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for SMBEXEL you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.