IvisionworksLtd (KOSDAQ:469750) Takes On Some Risk With Its Use Of Debt

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Ivisionworks Co.,Ltd. (KOSDAQ:469750) 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 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is IvisionworksLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 IvisionworksLtd had debt of ₩9.39b, up from ₩7.69b in one year. However, its balance sheet shows it holds ₩19.0b in cash, so it actually has ₩9.64b net cash.

How Healthy Is IvisionworksLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that IvisionworksLtd had liabilities of ₩11.2b due within 12 months and liabilities of ₩3.47b due beyond that. Offsetting these obligations, it had cash of ₩19.0b as well as receivables valued at ₩1.94b due within 12 months. So it can boast ₩6.30b more liquid assets than total liabilities.

This short term liquidity is a sign that IvisionworksLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, IvisionworksLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for IvisionworksLtd

The modesty of its debt load may become crucial for IvisionworksLtd if management cannot prevent a repeat of the 96% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is IvisionworksLtd'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While IvisionworksLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last two years, IvisionworksLtd burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that IvisionworksLtd has net cash of ₩9.64b, as well as more liquid assets than liabilities. So although we see some areas for improvement, we're not too worried about IvisionworksLtd's balance sheet. 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. Case in point: We've spotted 4 warning signs for IvisionworksLtd you should be aware of, and 1 of them is concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.