Is Welcron HantecLtd (KOSDAQ:076080) A Risky Investment?

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 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. We note that Welcron Hantec Co.,Ltd. (KOSDAQ:076080) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Welcron HantecLtd

How Much Debt Does Welcron HantecLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Welcron HantecLtd had ₩8.00b of debt, an increase on ₩3.00b, over one year. However, its balance sheet shows it holds ₩19.3b in cash, so it actually has ₩11.3b net cash.

How Strong Is Welcron HantecLtd's Balance Sheet?

According to the last reported balance sheet, Welcron HantecLtd had liabilities of ₩99.9b due within 12 months, and liabilities of ₩2.03b due beyond 12 months. Offsetting these obligations, it had cash of ₩19.3b as well as receivables valued at ₩84.4b due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This surplus suggests that Welcron HantecLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Welcron HantecLtd has more cash than debt is arguably a good indication that 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 Welcron HantecLtd 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.

Over 12 months, Welcron HantecLtd made a loss at the EBIT level, and saw its revenue drop to ₩297b, which is a fall of 20%. We would much prefer see growth.

So How Risky Is Welcron HantecLtd?

Although Welcron HantecLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩259m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Welcron HantecLtd (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.