Is Satrec Initiative (KOSDAQ:099320) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Satrec Initiative Co., Ltd. (KOSDAQ:099320) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Satrec Initiative's Net Debt?

As you can see below, at the end of June 2025, Satrec Initiative had ₩5.50b of debt, up from ₩3.10b a year ago. Click the image for more detail. However, it does have ₩49.7b in cash offsetting this, leading to net cash of ₩44.2b.

How Healthy Is Satrec Initiative's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Satrec Initiative had liabilities of ₩127.0b due within 12 months and liabilities of ₩14.1b due beyond that. On the other hand, it had cash of ₩49.7b and ₩4.64b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩86.8b.

Given Satrec Initiative has a market capitalization of ₩651.6b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Satrec Initiative boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Satrec Initiative

Although Satrec Initiative made a loss at the EBIT level, last year, it was also good to see that it generated ₩5.5b in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Satrec Initiative can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Satrec Initiative may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, Satrec Initiative burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While Satrec Initiative does have more liabilities than liquid assets, it also has net cash of ₩44.2b. So we don't have any problem with Satrec Initiative's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Satrec Initiative (including 1 which makes us a bit uncomfortable) .

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.