Modetour Network (KOSDAQ:080160) Has A Pretty 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.' 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 note that Modetour Network Inc. (KOSDAQ:080160) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Modetour Network's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Modetour Network had ₩3.02b of debt, an increase on ₩42.4m, over one year. However, it does have ₩106.7b in cash offsetting this, leading to net cash of ₩103.7b.

A Look At Modetour Network's Liabilities

We can see from the most recent balance sheet that Modetour Network had liabilities of ₩113.5b falling due within a year, and liabilities of ₩26.5b due beyond that. On the other hand, it had cash of ₩106.7b and ₩22.6b worth of receivables due within a year. So its liabilities total ₩10.7b more than the combination of its cash and short-term receivables.

Of course, Modetour Network has a market capitalization of ₩213.8b, 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. Despite its noteworthy liabilities, Modetour Network boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Modetour Network

The modesty of its debt load may become crucial for Modetour Network if management cannot prevent a repeat of the 39% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Modetour Network's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Modetour Network 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, Modetour Network actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Modetour Network has ₩103.7b in net cash. And it impressed us with free cash flow of ₩12b, being 239% of its EBIT. So we don't have any problem with Modetour Network's use of debt. 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 1 warning sign for Modetour Network you should know about.

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.

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

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.