Does EGTRONICSLtd (KOSDAQ:377330) Have A Healthy Balance Sheet?

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. Importantly, EGTRONICS Co.,Ltd. (KOSDAQ:377330) does carry debt. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for EGTRONICSLtd

What Is EGTRONICSLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 EGTRONICSLtd had ₩8.49b of debt, an increase on ₩4.09b, over one year. On the flip side, it has ₩7.79b in cash leading to net debt of about ₩697.7m.

A Look At EGTRONICSLtd's Liabilities

According to the last reported balance sheet, EGTRONICSLtd had liabilities of ₩17.4b due within 12 months, and liabilities of ₩3.20b due beyond 12 months. Offsetting this, it had ₩7.79b in cash and ₩23.6b in receivables that were due within 12 months. So it can boast ₩10.7b more liquid assets than total liabilities.

This excess liquidity suggests that EGTRONICSLtd is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. The balance sheet is clearly the area to focus on when you are analysing debt. But it is EGTRONICSLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year EGTRONICSLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 74%, to ₩43b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, EGTRONICSLtd still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩3.9b. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that EGTRONICSLtd is showing 4 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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