These 4 Measures Indicate That Codes Combine (KOSDAQ:047770) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Codes Combine Co., Ltd. (KOSDAQ:047770) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Codes Combine Carry?

As you can see below, Codes Combine had ₩4.79b of debt at March 2025, down from ₩5.86b a year prior. But on the other hand it also has ₩31.2b in cash, leading to a ₩26.4b net cash position.

How Strong Is Codes Combine's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Codes Combine had liabilities of ₩10.8b due within 12 months and liabilities of ₩9.17b due beyond that. Offsetting this, it had ₩31.2b in cash and ₩3.79b in receivables that were due within 12 months. So it actually has ₩15.0b more liquid assets than total liabilities.

This surplus suggests that Codes Combine is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Codes Combine has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Codes Combine

In fact Codes Combine's saving grace is its low debt levels, because its EBIT has tanked 64% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is Codes Combine'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Codes Combine 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. Over the last three years, Codes Combine actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Codes Combine has ₩26.4b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩2.6b, being 106% of its EBIT. So we don't think Codes Combine's use of debt is risky. 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. Case in point: We've spotted 3 warning signs for Codes Combine you should be aware of, and 1 of them is a bit concerning.

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.