Satrec Initiative (KOSDAQ:099320) Has Debt But No Earnings; Should You Worry?

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. We can see that Satrec Initiative Co., Ltd. (KOSDAQ:099320) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Satrec Initiative's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Satrec Initiative had ₩7.50b of debt, an increase on ₩3.43b, over one year. However, its balance sheet shows it holds ₩173.2b in cash, so it actually has ₩165.7b net cash.

A Look At Satrec Initiative's Liabilities

Zooming in on the latest balance sheet data, we can see that Satrec Initiative had liabilities of ₩204.4b due within 12 months and liabilities of ₩13.2b due beyond that. Offsetting these obligations, it had cash of ₩173.2b as well as receivables valued at ₩3.09b due within 12 months. So it has liabilities totalling ₩41.3b more than its cash and near-term receivables, combined.

Of course, Satrec Initiative has a market capitalization of ₩547.6b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Satrec Initiative 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 Satrec Initiative will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Satrec Initiative

Over 12 months, Satrec Initiative reported revenue of ₩171b, 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?

While Satrec Initiative lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₩7.9b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive is that Satrec Initiative is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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 example - Satrec Initiative has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.