Would CS BEARING (KOSDAQ:297090) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, CS BEARING Co., Ltd. (KOSDAQ:297090) does carry debt. But the more important question is: how much risk is that debt creating?

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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for CS BEARING

What Is CS BEARING's Net Debt?

You can click the graphic below for the historical numbers, but it shows that CS BEARING had ₩19.2b of debt in September 2024, down from ₩39.7b, one year before. On the flip side, it has ₩14.5b in cash leading to net debt of about ₩4.69b.

How Healthy Is CS BEARING's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CS BEARING had liabilities of ₩44.5b due within 12 months and liabilities of ₩1.10b due beyond that. On the other hand, it had cash of ₩14.5b and ₩27.1b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩4.01b.

Of course, CS BEARING has a market capitalization of ₩118.2b, 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. 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 CS BEARING 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.

In the last year CS BEARING's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months CS BEARING produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩1.1b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩3.8b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. We've identified 2 warning signs with CS BEARING , and understanding them should be part of your investment process.

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.