Is Crowdworks (KOSDAQ:355390) 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.' 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, Crowdworks, Inc. (KOSDAQ:355390) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Crowdworks's Net Debt?

The image below, which you can click on for greater detail, shows that Crowdworks had debt of ₩11.2b at the end of December 2024, a reduction from ₩13.2b over a year. However, it does have ₩12.9b in cash offsetting this, leading to net cash of ₩1.70b.

How Strong Is Crowdworks' Balance Sheet?

The latest balance sheet data shows that Crowdworks had liabilities of ₩21.7b due within a year, and liabilities of ₩870.9m falling due after that. Offsetting these obligations, it had cash of ₩12.9b as well as receivables valued at ₩2.71b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩6.98b.

Given Crowdworks has a market capitalization of ₩48.2b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Crowdworks also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Crowdworks will need earnings to service that debt. 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.

View our latest analysis for Crowdworks

In the last year Crowdworks had a loss before interest and tax, and actually shrunk its revenue by 50%, to ₩12b. That makes us nervous, to say the least.

So How Risky Is Crowdworks?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Crowdworks 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 ₩11b and booked a ₩8.8b accounting loss. But at least it has ₩1.70b on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Crowdworks (of which 2 shouldn't be ignored!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.