Zinus (KRX:013890) Is Making Moderate Use Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Zinus, Inc (KRX:013890) does use debt in its business. But should shareholders be worried about its use of debt?

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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 Zinus Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Zinus had ₩251.4b of debt, an increase on ₩224.5b, over one year. However, it also had ₩133.8b in cash, and so its net debt is ₩117.6b.

A Look At Zinus' Liabilities

According to the last reported balance sheet, Zinus had liabilities of ₩429.1b due within 12 months, and liabilities of ₩90.4b due beyond 12 months. Offsetting this, it had ₩133.8b in cash and ₩268.4b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩117.2b.

Zinus has a market capitalization of ₩379.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Zinus can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

View our latest analysis for Zinus

In the last year Zinus had a loss before interest and tax, and actually shrunk its revenue by 3.3%, to ₩920b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Zinus produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩5.5b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩21b of cash over the last year. So in short it's a really risky stock. 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. Be aware that Zinus is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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.