Is Lumir (KOSDAQ:474170) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Lumir Inc. (KOSDAQ:474170) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Lumir Carry?

The image below, which you can click on for greater detail, shows that Lumir had debt of ₩3.28b at the end of December 2024, a reduction from ₩6.28b over a year. However, its balance sheet shows it holds ₩32.6b in cash, so it actually has ₩29.3b net cash.

How Strong Is Lumir's Balance Sheet?

The latest balance sheet data shows that Lumir had liabilities of ₩8.73b due within a year, and liabilities of ₩2.30b falling due after that. Offsetting this, it had ₩32.6b in cash and ₩4.49b in receivables that were due within 12 months. So it actually has ₩26.1b more liquid assets than total liabilities.

This surplus suggests that Lumir is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Lumir 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 Lumir 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 .

Check out our latest analysis for Lumir

In the last year Lumir wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to ₩14b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Lumir?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Lumir lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩42b of cash and made a loss of ₩1.1b. With only ₩29.3b on the balance sheet, it would appear that its going to need to raise capital again soon. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Lumir has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.