Is Neuromeka (KOSDAQ:348340) A Risky Investment?

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.' 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. As with many other companies Neuromeka Co., Ltd. (KOSDAQ:348340) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Neuromeka

How Much Debt Does Neuromeka Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Neuromeka had ₩38.3b of debt, an increase on ₩2.00b, over one year. On the flip side, it has ₩33.4b in cash leading to net debt of about ₩4.98b.

How Healthy Is Neuromeka's Balance Sheet?

According to the last reported balance sheet, Neuromeka had liabilities of ₩51.9b due within 12 months, and liabilities of ₩20.6b due beyond 12 months. Offsetting these obligations, it had cash of ₩33.4b as well as receivables valued at ₩9.20b due within 12 months. So its liabilities total ₩29.9b more than the combination of its cash and short-term receivables.

Given Neuromeka has a market capitalization of ₩246.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Neuromeka 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 Neuromeka wasn't profitable at an EBIT level, but managed to grow its revenue by 75%, to ₩16b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Neuromeka still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩18b. 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. However, it doesn't help that it burned through ₩44b of cash over the last year. So suffice it to say we consider the stock very 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. For instance, we've identified 2 warning signs for Neuromeka that 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com