Is AltonLtd (KOSDAQ:123750) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Alton Co.,Ltd. (KOSDAQ:123750) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does AltonLtd Carry?

As you can see below, AltonLtd had ₩5.20b of debt at March 2025, down from ₩5.69b a year prior. However, it does have ₩11.2b in cash offsetting this, leading to net cash of ₩5.96b.

How Healthy Is AltonLtd's Balance Sheet?

We can see from the most recent balance sheet that AltonLtd had liabilities of ₩13.0b falling due within a year, and liabilities of ₩387.3m due beyond that. Offsetting these obligations, it had cash of ₩11.2b as well as receivables valued at ₩3.30b due within 12 months. So it actually has ₩1.04b more liquid assets than total liabilities.

This short term liquidity is a sign that AltonLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, AltonLtd 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 you can't view debt in total isolation; since AltonLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for AltonLtd

Over 12 months, AltonLtd made a loss at the EBIT level, and saw its revenue drop to ₩28b, which is a fall of 27%. That makes us nervous, to say the least.

So How Risky Is AltonLtd?

Although AltonLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩527m. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example AltonLtd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.