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. We note that YBM Net, Inc. (KOSDAQ:057030) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for YBM Net
How Much Debt Does YBM Net Carry?
The chart below, which you can click on for greater detail, shows that YBM Net had ₩14.3b in debt in September 2020; about the same as the year before. However, its balance sheet shows it holds ₩23.2b in cash, so it actually has ₩8.91b net cash.
How Healthy Is YBM Net's Balance Sheet?
According to the last reported balance sheet, YBM Net had liabilities of ₩32.5b due within 12 months, and liabilities of ₩3.50b due beyond 12 months. Offsetting this, it had ₩23.2b in cash and ₩6.24b in receivables that were due within 12 months. So its liabilities total ₩6.48b more than the combination of its cash and short-term receivables.
Given YBM Net has a market capitalization of ₩116.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, YBM Net also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since YBM Net will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year YBM Net had a loss before interest and tax, and actually shrunk its revenue by 12%, to ₩53b. That's not what we would hope to see.
So How Risky Is YBM Net?
Although YBM Net had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩5.3b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with YBM Net , and understanding them should be part of your investment process.
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. 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.
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About KOSDAQ:A057030
Flawless balance sheet, good value and pays a dividend.
