Is ASIA SEEDLtd (KOSDAQ:154030) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that ASIA SEED Co.,Ltd. (KOSDAQ:154030) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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, 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.

Check out our latest analysis for ASIA SEEDLtd

How Much Debt Does ASIA SEEDLtd Carry?

You can click the graphic below for the historical numbers, but it shows that ASIA SEEDLtd had ₩11.7b of debt in June 2024, down from ₩14.8b, one year before. However, it does have ₩3.84b in cash offsetting this, leading to net debt of about ₩7.89b.

A Look At ASIA SEEDLtd's Liabilities

The latest balance sheet data shows that ASIA SEEDLtd had liabilities of ₩13.8b due within a year, and liabilities of ₩3.36b falling due after that. Offsetting these obligations, it had cash of ₩3.84b as well as receivables valued at ₩5.44b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩7.89b.

While this might seem like a lot, it is not so bad since ASIA SEEDLtd has a market capitalization of ₩24.1b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is ASIA SEEDLtd'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.

In the last year ASIA SEEDLtd's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, ASIA SEEDLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩2.3b at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₩2.4b into a profit. In the meantime, we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. 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 ASIA SEEDLtd you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.