Is TPC Mechatronics (KOSDAQ:048770) Using Debt In A Risky Way?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that TPC Mechatronics Corporation (KOSDAQ:048770) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is TPC Mechatronics's Net Debt?

As you can see below, at the end of June 2025, TPC Mechatronics had ₩40.6b of debt, up from ₩35.6b a year ago. Click the image for more detail. However, it also had ₩9.53b in cash, and so its net debt is ₩31.0b.

How Healthy Is TPC Mechatronics' Balance Sheet?

The latest balance sheet data shows that TPC Mechatronics had liabilities of ₩56.4b due within a year, and liabilities of ₩15.2b falling due after that. On the other hand, it had cash of ₩9.53b and ₩20.8b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩41.2b.

This deficit is considerable relative to its market capitalization of ₩41.7b, so it does suggest shareholders should keep an eye on TPC Mechatronics' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is TPC Mechatronics's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for TPC Mechatronics

Over 12 months, TPC Mechatronics made a loss at the EBIT level, and saw its revenue drop to ₩84b, which is a fall of 6.0%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months TPC Mechatronics produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₩4.3b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩7.2b of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for TPC Mechatronics you should be aware of, and 2 of them are a bit concerning.

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.