Does S-Fuelcell (KOSDAQ:288620) Have A Healthy Balance Sheet?

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 S-Fuelcell co., Ltd. (KOSDAQ:288620) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for S-Fuelcell

How Much Debt Does S-Fuelcell Carry?

As you can see below, S-Fuelcell had ₩39.8b of debt at June 2024, down from ₩49.5b a year prior. But it also has ₩62.3b in cash to offset that, meaning it has ₩22.5b net cash.

A Look At S-Fuelcell's Liabilities

We can see from the most recent balance sheet that S-Fuelcell had liabilities of ₩61.5b falling due within a year, and liabilities of ₩2.92b due beyond that. Offsetting these obligations, it had cash of ₩62.3b as well as receivables valued at ₩18.4b due within 12 months. So it actually has ₩16.4b more liquid assets than total liabilities.

It's good to see that S-Fuelcell has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that S-Fuelcell has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if S-Fuelcell can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, S-Fuelcell made a loss at the EBIT level, and saw its revenue drop to ₩33b, which is a fall of 31%. That makes us nervous, to say the least.

So How Risky Is S-Fuelcell?

Although S-Fuelcell had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩8.5b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with S-Fuelcell .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.