We Think Stormtec (KOSDAQ:352090) Can Manage Its Debt With Ease

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. As with many other companies Stormtec (KOSDAQ:352090) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Stormtec Carry?

The image below, which you can click on for greater detail, shows that at December 2024 Stormtec had debt of ₩20.8b, up from ₩9.50b in one year. However, it does have ₩66.0b in cash offsetting this, leading to net cash of ₩45.2b.

How Strong Is Stormtec's Balance Sheet?

The latest balance sheet data shows that Stormtec had liabilities of ₩20.4b due within a year, and liabilities of ₩14.7b falling due after that. On the other hand, it had cash of ₩66.0b and ₩12.7b worth of receivables due within a year. So it can boast ₩43.7b more liquid assets than total liabilities.

This luscious liquidity implies that Stormtec's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Stormtec has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Stormtec

The good news is that Stormtec has increased its EBIT by 6.6% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Stormtec's earnings that will influence how the balance sheet holds up in the future. 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. Stormtec 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. During the last two years, Stormtec generated free cash flow amounting to a very robust 86% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Stormtec has ₩45.2b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩12b, being 86% of its EBIT. So is Stormtec's debt a risk? It doesn't seem so to us. 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 - Stormtec has 2 warning signs we think you should be aware of.

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.