Automobile & PCB (KRX:015260) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Automobile & PCB Inc. (KRX:015260) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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.

Check out our latest analysis for Automobile & PCB

What Is Automobile & PCB's Debt?

You can click the graphic below for the historical numbers, but it shows that Automobile & PCB had ₩37.7b of debt in September 2023, down from ₩47.9b, one year before. However, it does have ₩8.46b in cash offsetting this, leading to net debt of about ₩29.2b.

How Strong Is Automobile & PCB's Balance Sheet?

We can see from the most recent balance sheet that Automobile & PCB had liabilities of ₩60.2b falling due within a year, and liabilities of ₩9.90b due beyond that. Offsetting this, it had ₩8.46b in cash and ₩19.1b in receivables that were due within 12 months. So it has liabilities totalling ₩42.6b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₩53.8b, so it does suggest shareholders should keep an eye on Automobile & PCB's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Automobile & PCB 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.

Over 12 months, Automobile & PCB reported revenue of ₩149b, which is a gain of 65%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Automobile & PCB still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩3.9b. 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. Another cause for caution is that is bled ₩1.3b in negative free cash flow over the last twelve months. 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. Be aware that Automobile & PCB is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

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.

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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.