Here's Why ILWOUL GMLLtd (KOSDAQ:178780) Has A Meaningful Debt Burden

Warren Buffett famously said, '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 ILWOUL GML Co.,Ltd (KOSDAQ:178780) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for ILWOUL GMLLtd

How Much Debt Does ILWOUL GMLLtd Carry?

As you can see below, ILWOUL GMLLtd had ₩7.57b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has ₩14.4b in cash, leading to a ₩6.86b net cash position.

How Strong Is ILWOUL GMLLtd's Balance Sheet?

According to the last reported balance sheet, ILWOUL GMLLtd had liabilities of ₩24.3b due within 12 months, and liabilities of ₩139.7m due beyond 12 months. Offsetting these obligations, it had cash of ₩14.4b as well as receivables valued at ₩5.27b due within 12 months. So its liabilities total ₩4.69b more than the combination of its cash and short-term receivables.

Of course, ILWOUL GMLLtd has a market capitalization of ₩69.0b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, ILWOUL GMLLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.

Notably, ILWOUL GMLLtd made a loss at the EBIT level, last year, but improved that to positive EBIT of ₩1.1b in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ILWOUL GMLLtd 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ILWOUL GMLLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, ILWOUL GMLLtd 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 it is always sensible to look at a company's total liabilities, it is very reassuring that ILWOUL GMLLtd has ₩6.86b in net cash. So although we see some areas for improvement, we're not too worried about ILWOUL GMLLtd's balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for ILWOUL GMLLtd you should know about.

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.