Is EGTRONICSLtd (KOSDAQ:377330) Using Debt In A Risky Way?

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.' 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. Importantly, EGTRONICS Co.,Ltd. (KOSDAQ:377330) does carry debt. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is EGTRONICSLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 EGTRONICSLtd had ₩7.30b of debt, an increase on ₩3.67b, over one year. But on the other hand it also has ₩18.9b in cash, leading to a ₩11.6b net cash position.

How Healthy Is EGTRONICSLtd's Balance Sheet?

The latest balance sheet data shows that EGTRONICSLtd had liabilities of ₩11.9b due within a year, and liabilities of ₩2.61b falling due after that. On the other hand, it had cash of ₩18.9b and ₩11.0b worth of receivables due within a year. So it actually has ₩15.4b more liquid assets than total liabilities.

This surplus strongly suggests that EGTRONICSLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that EGTRONICSLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is EGTRONICSLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for EGTRONICSLtd

Over 12 months, EGTRONICSLtd reported revenue of ₩37b, which is a gain of 3.7%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is EGTRONICSLtd?

While EGTRONICSLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩9.7b. 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. 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, we've discovered 3 warning signs for EGTRONICSLtd that you should be aware of before investing here.

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.