Does In the FLTD (KRX:014990) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, In the F CO.,LTD. (KRX:014990) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

View our latest analysis for In the FLTD

What Is In the FLTD's Net Debt?

The image below, which you can click on for greater detail, shows that In the FLTD had debt of ₩35.1b at the end of March 2024, a reduction from ₩39.3b over a year. On the flip side, it has ₩4.27b in cash leading to net debt of about ₩30.8b.

How Strong Is In the FLTD's Balance Sheet?

We can see from the most recent balance sheet that In the FLTD had liabilities of ₩63.8b falling due within a year, and liabilities of ₩15.4b due beyond that. On the other hand, it had cash of ₩4.27b and ₩11.7b worth of receivables due within a year. So it has liabilities totalling ₩63.2b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's ₩53.0b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is In the FLTD'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.

Over 12 months, In the FLTD made a loss at the EBIT level, and saw its revenue drop to ₩124b, which is a fall of 6.8%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months In the FLTD produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩1.1b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of ₩329m. In the meantime, we consider the stock to be risky. 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. Case in point: We've spotted 2 warning signs for In the FLTD you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com