Does Mgen Solutions (KOSDAQ:032790) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Mgen Solutions Co., Ltd. (KOSDAQ:032790) does carry debt. But should shareholders be worried about its use of debt?

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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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Mgen Solutions's Debt?

The image below, which you can click on for greater detail, shows that Mgen Solutions had debt of ₩11.1b at the end of March 2025, a reduction from ₩11.6b over a year. However, its balance sheet shows it holds ₩12.0b in cash, so it actually has ₩883.7m net cash.

How Healthy Is Mgen Solutions' Balance Sheet?

The latest balance sheet data shows that Mgen Solutions had liabilities of ₩22.0b due within a year, and liabilities of ₩2.90b falling due after that. Offsetting this, it had ₩12.0b in cash and ₩15.0b in receivables that were due within 12 months. So it actually has ₩2.16b more liquid assets than total liabilities.

This surplus suggests that Mgen Solutions has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Mgen Solutions 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 you can't view debt in total isolation; since Mgen Solutions 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 Mgen Solutions

In the last year Mgen Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 2,300%, to ₩48b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Mgen Solutions?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Mgen Solutions had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩8.3b and booked a ₩1.9b accounting loss. However, it has net cash of ₩883.7m, so it has a bit of time before it will need more capital. The good news for shareholders is that Mgen Solutions has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. 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. For example Mgen Solutions has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.