Is SEOULEAGUER (KOSDAQ:043710) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, SEOULEAGUER Co., Ltd. (KOSDAQ:043710) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for SEOULEAGUER

How Much Debt Does SEOULEAGUER Carry?

As you can see below, at the end of June 2024, SEOULEAGUER had ₩4.61b of debt, up from ₩1.05b a year ago. Click the image for more detail. But it also has ₩7.57b in cash to offset that, meaning it has ₩2.96b net cash.

How Strong Is SEOULEAGUER's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SEOULEAGUER had liabilities of ₩7.70b due within 12 months and liabilities of ₩5.45b due beyond that. On the other hand, it had cash of ₩7.57b and ₩5.48b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to SEOULEAGUER's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩37.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, SEOULEAGUER boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since SEOULEAGUER will need earnings to service that debt. 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 SEOULEAGUER wasn't profitable at an EBIT level, but managed to grow its revenue by 9.9%, to ₩19b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is SEOULEAGUER?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that SEOULEAGUER had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩1.7b of cash and made a loss of ₩12b. While this does make the company a bit risky, it's important to remember it has net cash of ₩2.96b. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. We've identified 1 warning sign with SEOULEAGUER , and understanding them should be part of your investment process.

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.