Is Paseco (KOSDAQ:037070) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Paseco Co. Ltd (KOSDAQ:037070) does use debt in its business. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Paseco's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Paseco had debt of ₩11.9b, up from ₩9.87b in one year. However, it does have ₩19.1b in cash offsetting this, leading to net cash of ₩7.20b.

How Healthy Is Paseco's Balance Sheet?

We can see from the most recent balance sheet that Paseco had liabilities of ₩33.1b falling due within a year, and liabilities of ₩4.12b due beyond that. Offsetting these obligations, it had cash of ₩19.1b as well as receivables valued at ₩19.1b due within 12 months. So it actually has ₩893.2m more liquid assets than total liabilities.

This state of affairs indicates that Paseco's 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 ₩115.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Paseco has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Paseco 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.

Check out our latest analysis for Paseco

In the last year Paseco wasn't profitable at an EBIT level, but managed to grow its revenue by 6.9%, to ₩158b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Paseco?

While Paseco lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩1.6b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Paseco is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.