We Think Blitzway StudiosLTD (KOSDAQ:369370) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Blitzway Studios Co.,LTD. (KOSDAQ:369370) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.

View our latest analysis for Blitzway StudiosLTD

What Is Blitzway StudiosLTD's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Blitzway StudiosLTD had ₩12.0b of debt, an increase on ₩8.30b, over one year. On the flip side, it has ₩7.14b in cash leading to net debt of about ₩4.88b.

A Look At Blitzway StudiosLTD's Liabilities

According to the last reported balance sheet, Blitzway StudiosLTD had liabilities of ₩12.9b due within 12 months, and liabilities of ₩7.18b due beyond 12 months. Offsetting these obligations, it had cash of ₩7.14b as well as receivables valued at ₩2.50b due within 12 months. So its liabilities total ₩10.4b more than the combination of its cash and short-term receivables.

Of course, Blitzway StudiosLTD has a market capitalization of ₩82.4b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Blitzway StudiosLTD 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.

In the last year Blitzway StudiosLTD wasn't profitable at an EBIT level, but managed to grow its revenue by 140%, to ₩21b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Blitzway StudiosLTD still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩7.9b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩6.7b of cash over the last year. So in short it's a really risky stock. 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. For example, we've discovered 3 warning signs for Blitzway StudiosLTD (1 is concerning!) that you should be aware of before investing here.

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.