Global SM Tech (KOSDAQ:900070) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Global SM Tech Limited (KOSDAQ:900070) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Global SM Tech

How Much Debt Does Global SM Tech Carry?

You can click the graphic below for the historical numbers, but it shows that Global SM Tech had ₩5.57b of debt in March 2024, down from ₩7.00b, one year before. However, it does have ₩37.1b in cash offsetting this, leading to net cash of ₩31.5b.

A Look At Global SM Tech's Liabilities

Zooming in on the latest balance sheet data, we can see that Global SM Tech had liabilities of ₩26.0b due within 12 months and liabilities of ₩9.40b due beyond that. On the other hand, it had cash of ₩37.1b and ₩45.6b worth of receivables due within a year. So it can boast ₩47.3b more liquid assets than total liabilities.

This luscious liquidity implies that Global SM Tech's balance sheet is sturdy like a giant sequoia tree. 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 Global SM Tech has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Global SM Tech's load is not too heavy, because its EBIT was down 52% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Global SM Tech'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Global SM Tech 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. Happily for any shareholders, Global SM Tech actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, the bottom line is that Global SM Tech has net cash of ₩31.5b and plenty of liquid assets. The cherry on top was that in converted 115% of that EBIT to free cash flow, bringing in ₩8.7b. So is Global SM Tech's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 2 warning signs for Global SM Tech you should be aware of.

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.