Health Check: How Prudently Does Ocean In WLtd (KOSDAQ:052300) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Ocean In W Co.,Ltd. (KOSDAQ:052300) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Ocean In WLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Ocean In WLtd had debt of ₩20.6b, up from none in one year. However, its balance sheet shows it holds ₩36.1b in cash, so it actually has ₩15.6b net cash.

How Healthy Is Ocean In WLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ocean In WLtd had liabilities of ₩27.8b due within 12 months and liabilities of ₩82.4b due beyond that. Offsetting this, it had ₩36.1b in cash and ₩55.5b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩18.6b.

While this might seem like a lot, it is not so bad since Ocean In WLtd has a market capitalization of ₩47.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Ocean In WLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Ocean In WLtd 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.

Check out our latest analysis for Ocean In WLtd

Over 12 months, Ocean In WLtd made a loss at the EBIT level, and saw its revenue drop to ₩6.1b, which is a fall of 44%. That makes us nervous, to say the least.

So How Risky Is Ocean In WLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Ocean In WLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩2.6b of cash and made a loss of ₩44b. With only ₩15.6b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 4 warning signs we've spotted with Ocean In WLtd (including 1 which is a bit concerning) .

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.