We Think Sebo Manufacturing Engineering & Construction (KOSDAQ:011560) Has A Fair Chunk Of Debt

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, Sebo Manufacturing, Engineering & Construction Corp. (KOSDAQ:011560) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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, 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.

See our latest analysis for Sebo Manufacturing Engineering & Construction

What Is Sebo Manufacturing Engineering & Construction's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Sebo Manufacturing Engineering & Construction had ₩63.9b of debt, an increase on ₩41.1b, over one year. On the flip side, it has ₩32.2b in cash leading to net debt of about ₩31.7b.

How Healthy Is Sebo Manufacturing Engineering & Construction's Balance Sheet?

The latest balance sheet data shows that Sebo Manufacturing Engineering & Construction had liabilities of ₩175.3b due within a year, and liabilities of ₩7.73b falling due after that. On the other hand, it had cash of ₩32.2b and ₩238.8b worth of receivables due within a year. So it can boast ₩87.9b more liquid assets than total liabilities.

This surplus strongly suggests that Sebo Manufacturing Engineering & Construction has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. 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 Sebo Manufacturing Engineering & Construction will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Sebo Manufacturing Engineering & Construction's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Sebo Manufacturing Engineering & Construction produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩13b. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Sebo Manufacturing Engineering & Construction you should be aware of, and 2 of them are a bit unpleasant.

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.

If you’re looking to trade Sebo Manufacturing Engineering & Construction, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade 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.