Health Check: How Prudently Does MEDIPOST (KOSDAQ:078160) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies MEDIPOST Co., Ltd. (KOSDAQ:078160) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 MEDIPOST

How Much Debt Does MEDIPOST Carry?

The chart below, which you can click on for greater detail, shows that MEDIPOST had ₩9.99b in debt in September 2024; about the same as the year before. However, its balance sheet shows it holds ₩110.5b in cash, so it actually has ₩100.5b net cash.

A Look At MEDIPOST's Liabilities

The latest balance sheet data shows that MEDIPOST had liabilities of ₩22.3b due within a year, and liabilities of ₩77.9b falling due after that. On the other hand, it had cash of ₩110.5b and ₩14.1b worth of receivables due within a year. So it actually has ₩24.4b more liquid assets than total liabilities.

This surplus suggests that MEDIPOST has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, MEDIPOST boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since MEDIPOST will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, MEDIPOST reported revenue of ₩70b, which is a gain of 2.5%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is MEDIPOST?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year MEDIPOST had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩27b of cash and made a loss of ₩11b. Given it only has net cash of ₩100.5b, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For instance, we've identified 1 warning sign for MEDIPOST that you should be aware of.

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.