Is Kweather (KOSDAQ:068100) Weighed On By Its Debt Load?

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.' 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 Kweather Co., Ltd (KOSDAQ:068100) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Kweather's Debt?

You can click the graphic below for the historical numbers, but it shows that Kweather had ₩3.00b of debt in September 2024, down from ₩3.38b, one year before. But on the other hand it also has ₩3.42b in cash, leading to a ₩423.4m net cash position.

How Strong Is Kweather's Balance Sheet?

We can see from the most recent balance sheet that Kweather had liabilities of ₩2.53b falling due within a year, and liabilities of ₩2.81b due beyond that. Offsetting these obligations, it had cash of ₩3.42b as well as receivables valued at ₩1.39b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩524.6m.

This state of affairs indicates that Kweather's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩32.3b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Kweather boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Kweather 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.

View our latest analysis for Kweather

Over 12 months, Kweather made a loss at the EBIT level, and saw its revenue drop to ₩13b, which is a fall of 7.1%. That's not what we would hope to see.

So How Risky Is Kweather?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Kweather 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 ₩3.2b and booked a ₩3.4b accounting loss. But at least it has ₩423.4m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 3 warning signs we've spotted with Kweather (including 2 which shouldn't be ignored) .

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.