Wantedlab (KOSDAQ:376980) Has A Rock Solid 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Wantedlab, Inc. (KOSDAQ:376980) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Wantedlab

What Is Wantedlab's Debt?

As you can see below, at the end of June 2024, Wantedlab had ₩3.50b of debt, up from ₩3.00b a year ago. Click the image for more detail. However, it does have ₩27.1b in cash offsetting this, leading to net cash of ₩23.6b.

A Look At Wantedlab's Liabilities

Zooming in on the latest balance sheet data, we can see that Wantedlab had liabilities of ₩8.93b due within 12 months and liabilities of ₩5.59b due beyond that. Offsetting these obligations, it had cash of ₩27.1b as well as receivables valued at ₩2.72b due within 12 months. So it actually has ₩15.3b more liquid assets than total liabilities.

This luscious liquidity implies that Wantedlab's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Wantedlab boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for Wantedlab if management cannot prevent a repeat of the 93% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Wantedlab 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Wantedlab may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Wantedlab actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Wantedlab has ₩23.6b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩4.3b, being 174% of its EBIT. So is Wantedlab's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Wantedlab is showing 3 warning signs in our investment analysis , 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.

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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.