Is Soosung Webtoon (KOSDAQ:084180) Using Too Much 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.' 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, Soosung Webtoon co., Ltd. (KOSDAQ:084180) does carry debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Soosung Webtoon

How Much Debt Does Soosung Webtoon Carry?

As you can see below, at the end of March 2024, Soosung Webtoon had ₩48.2b of debt, up from ₩27.8b a year ago. Click the image for more detail. However, it does have ₩9.68b in cash offsetting this, leading to net debt of about ₩38.6b.

How Strong Is Soosung Webtoon's Balance Sheet?

According to the last reported balance sheet, Soosung Webtoon had liabilities of ₩65.4b due within 12 months, and liabilities of ₩10.7b due beyond 12 months. Offsetting this, it had ₩9.68b in cash and ₩10.9b in receivables that were due within 12 months. So its liabilities total ₩55.5b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₩59.7b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Soosung Webtoon's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Soosung Webtoon saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Soosung Webtoon produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩8.7b. 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. For example, we would not want to see a repeat of last year's loss of ₩7.7b. So to be blunt we do think it is risky. 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. For example, we've discovered 3 warning signs for Soosung Webtoon (1 is significant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.