Rock star Growth Puts Contec.Co.Ltd (KOSDAQ:451760) In A Position To Use Debt

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.' 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 can see that Contec.,Co.Ltd (KOSDAQ:451760) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Contec.Co.Ltd Carry?

As you can see below, at the end of December 2024, Contec.Co.Ltd had ₩21.1b of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has ₩118.8b in cash, leading to a ₩97.6b net cash position.

How Healthy Is Contec.Co.Ltd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Contec.Co.Ltd had liabilities of ₩77.3b due within 12 months and liabilities of ₩11.4b due beyond that. Offsetting this, it had ₩118.8b in cash and ₩16.1b in receivables that were due within 12 months. So it actually has ₩46.2b more liquid assets than total liabilities.

This surplus liquidity suggests that Contec.Co.Ltd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Contec.Co.Ltd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Contec.Co.Ltd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Contec.Co.Ltd

In the last year Contec.Co.Ltd wasn't profitable at an EBIT level, but managed to grow its revenue by 336%, to ₩69b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Contec.Co.Ltd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Contec.Co.Ltd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩7.5b of cash and made a loss of ₩23b. But the saving grace is the ₩97.6b on the balance sheet. That means it could keep spending at its current rate for more than two years. Importantly, Contec.Co.Ltd's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. We've identified 1 warning sign with Contec.Co.Ltd , and understanding them should be part of your investment process.

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.