Is Maniker.Co.Ltd (KRX:027740) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 note that Maniker.Co.,Ltd (KRX:027740) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Maniker.Co.Ltd

How Much Debt Does Maniker.Co.Ltd Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Maniker.Co.Ltd had ₩93.5b of debt, an increase on ₩69.2b, over one year. However, it does have ₩13.3b in cash offsetting this, leading to net debt of about ₩80.2b.

A Look At Maniker.Co.Ltd's Liabilities

According to the last reported balance sheet, Maniker.Co.Ltd had liabilities of ₩89.2b due within 12 months, and liabilities of ₩31.0b due beyond 12 months. Offsetting these obligations, it had cash of ₩13.3b as well as receivables valued at ₩19.1b due within 12 months. So its liabilities total ₩87.8b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Maniker.Co.Ltd has a market capitalization of ₩146.5b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Maniker.Co.Ltd'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 Maniker.Co.Ltd had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₩215b. That's not what we would hope to see.

Caveat Emptor

While Maniker.Co.Ltd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable ₩31b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩31b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Maniker.Co.Ltd (2 are a bit unpleasant!) that you should be aware of before investing here.

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. 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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