Is Finetechnix.Ltd (KOSDAQ:106240) Using Debt In A Risky Way?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Finetechnix. Co.,Ltd. (KOSDAQ:106240) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Finetechnix.Ltd's Debt?

The chart below, which you can click on for greater detail, shows that Finetechnix.Ltd had ₩44.6b in debt in December 2024; about the same as the year before. However, it also had ₩3.27b in cash, and so its net debt is ₩41.3b.

How Healthy Is Finetechnix.Ltd's Balance Sheet?

The latest balance sheet data shows that Finetechnix.Ltd had liabilities of ₩61.2b due within a year, and liabilities of ₩2.15b falling due after that. On the other hand, it had cash of ₩3.27b and ₩17.1b worth of receivables due within a year. So its liabilities total ₩43.0b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩22.1b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Finetechnix.Ltd would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Finetechnix.Ltd 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 .

See our latest analysis for Finetechnix.Ltd

Over 12 months, Finetechnix.Ltd made a loss at the EBIT level, and saw its revenue drop to ₩58b, which is a fall of 3.0%. That's not what we would hope to see.

Caveat Emptor

Importantly, Finetechnix.Ltd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩1.8b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of ₩5.0b didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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 Finetechnix.Ltd (including 1 which is concerning) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.