Is EGTRONICSLtd (KOSDAQ:377330) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that EGTRONICS Co.,Ltd. (KOSDAQ:377330) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

What Is EGTRONICSLtd's Debt?

The image below, which you can click on for greater detail, shows that EGTRONICSLtd had debt of ₩6.73b at the end of June 2025, a reduction from ₩8.01b over a year. But on the other hand it also has ₩12.2b in cash, leading to a ₩5.44b net cash position.

How Strong Is EGTRONICSLtd's Balance Sheet?

The latest balance sheet data shows that EGTRONICSLtd had liabilities of ₩12.9b due within a year, and liabilities of ₩1.74b falling due after that. Offsetting these obligations, it had cash of ₩12.2b as well as receivables valued at ₩9.95b due within 12 months. So it actually has ₩7.45b more liquid assets than total liabilities.

It's good to see that EGTRONICSLtd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that EGTRONICSLtd has more cash than debt is arguably a good indication that it can manage its debt safely. 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 EGTRONICSLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for EGTRONICSLtd

Over 12 months, EGTRONICSLtd made a loss at the EBIT level, and saw its revenue drop to ₩26b, which is a fall of 35%. That makes us nervous, to say the least.

So How Risky Is EGTRONICSLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year EGTRONICSLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩8.9b. However, it has net cash of ₩5.44b, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example EGTRONICSLtd has 5 warning signs (and 3 which can't be ignored) we think you should know about.

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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.