Is Agabang&Company (KOSDAQ:013990) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Agabang&Company (KOSDAQ:013990) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Agabang&Company

What Is Agabang&Company's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Agabang&Company had ₩3.00b of debt in September 2020, down from ₩5.19b, one year before. However, it does have ₩9.84b in cash offsetting this, leading to net cash of ₩6.84b.

A Look At Agabang&Company's Liabilities

Zooming in on the latest balance sheet data, we can see that Agabang&Company had liabilities of ₩36.2b due within 12 months and liabilities of ₩16.2b due beyond that. Offsetting this, it had ₩9.84b in cash and ₩22.6b in receivables that were due within 12 months. So it has liabilities totalling ₩20.0b more than its cash and near-term receivables, combined.

Given Agabang&Company has a market capitalization of ₩109.7b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Agabang&Company boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Agabang&Company's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Agabang&Company wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to ₩126b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Agabang&Company?

Although Agabang&Company had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩2.5b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Agabang&Company is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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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