Health Check: How Prudently Does Satrec Initiative (KOSDAQ:099320) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Satrec Initiative Co., Ltd. (KOSDAQ:099320) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Satrec Initiative

What Is Satrec Initiative's Net Debt?

As you can see below, Satrec Initiative had ₩3.43b of debt at December 2023, down from ₩52.6b a year prior. However, its balance sheet shows it holds ₩110.3b in cash, so it actually has ₩106.9b net cash.

How Strong Is Satrec Initiative's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Satrec Initiative had liabilities of ₩81.0b due within 12 months and liabilities of ₩13.6b due beyond that. Offsetting these obligations, it had cash of ₩110.3b as well as receivables valued at ₩6.39b due within 12 months. So it actually has ₩22.1b more liquid assets than total liabilities.

This short term liquidity is a sign that Satrec Initiative could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Satrec Initiative boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Satrec Initiative's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Satrec Initiative reported revenue of ₩125b, which is a gain of 37%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Satrec Initiative?

Although Satrec Initiative had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩44b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 37% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Satrec Initiative (2 shouldn't be ignored) you should be aware of.

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.