Does Crowdworks (KOSDAQ:355390) 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. We note that Crowdworks, Inc. (KOSDAQ:355390) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Crowdworks

How Much Debt Does Crowdworks Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Crowdworks had ₩12.9b of debt, an increase on ₩10.1b, over one year. However, its balance sheet shows it holds ₩26.5b in cash, so it actually has ₩13.6b net cash.

How Healthy Is Crowdworks' Balance Sheet?

We can see from the most recent balance sheet that Crowdworks had liabilities of ₩25.7b falling due within a year, and liabilities of ₩1.37b due beyond that. Offsetting this, it had ₩26.5b in cash and ₩1.42b in receivables that were due within 12 months. So it can boast ₩819.5m more liquid assets than total liabilities.

This state of affairs indicates that Crowdworks' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩68.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Crowdworks boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Crowdworks's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Crowdworks reported revenue of ₩19b, which is a gain of 9.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Crowdworks?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Crowdworks had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩5.5b of cash and made a loss of ₩13b. While this does make the company a bit risky, it's important to remember it has net cash of ₩13.6b. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. For example Crowdworks has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com