Synergy Innovation (KOSDAQ:048870) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Synergy Innovation Co., Ltd. (KOSDAQ:048870) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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.

View our latest analysis for Synergy Innovation

What Is Synergy Innovation's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Synergy Innovation had ₩30.1b of debt, an increase on ₩10.9b, over one year. But it also has ₩94.8b in cash to offset that, meaning it has ₩64.7b net cash.

How Strong Is Synergy Innovation's Balance Sheet?

According to the last reported balance sheet, Synergy Innovation had liabilities of ₩68.4b due within 12 months, and liabilities of ₩1.64b due beyond 12 months. Offsetting this, it had ₩94.8b in cash and ₩18.5b in receivables that were due within 12 months. So it can boast ₩43.4b more liquid assets than total liabilities.

It's good to see that Synergy Innovation has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Synergy Innovation boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for Synergy Innovation if management cannot prevent a repeat of the 21% 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Synergy Innovation's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Synergy Innovation 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. Over the last three years, Synergy Innovation actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Synergy Innovation has net cash of ₩64.7b, as well as more liquid assets than liabilities. The cherry on top was that in converted 114% of that EBIT to free cash flow, bringing in ₩18b. So is Synergy Innovation's debt a risk? It doesn't seem so to us. 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. Be aware that Synergy Innovation is showing 2 warning signs in our investment analysis , 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.