Does Anam ElectronicsLtd (KRX:008700) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Anam Electronics Co.,Ltd. (KRX:008700) does use debt in its business. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Anam ElectronicsLtd Carry?

As you can see below, at the end of September 2025, Anam ElectronicsLtd had ₩44.3b of debt, up from ₩37.6b a year ago. Click the image for more detail. However, it does have ₩69.2b in cash offsetting this, leading to net cash of ₩24.9b.

How Strong Is Anam ElectronicsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Anam ElectronicsLtd had liabilities of ₩102.3b due within 12 months and liabilities of ₩2.74b due beyond that. Offsetting these obligations, it had cash of ₩69.2b as well as receivables valued at ₩74.3b due within 12 months. So it can boast ₩38.4b more liquid assets than total liabilities.

This surplus strongly suggests that Anam ElectronicsLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Anam ElectronicsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Anam ElectronicsLtd

In fact Anam ElectronicsLtd's saving grace is its low debt levels, because its EBIT has tanked 46% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is Anam ElectronicsLtd'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Anam ElectronicsLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Anam ElectronicsLtd actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Anam ElectronicsLtd has net cash of ₩24.9b, as well as more liquid assets than liabilities. The cherry on top was that in converted 490% of that EBIT to free cash flow, bringing in ₩32b. So we don't think Anam ElectronicsLtd's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Anam ElectronicsLtd (of which 1 shouldn't be ignored!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.