Is MEDIPOST (KOSDAQ:078160) A Risky Investment?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that MEDIPOST Co., Ltd. (KOSDAQ:078160) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for MEDIPOST

What Is MEDIPOST's Debt?

As you can see below, MEDIPOST had ₩37.8b of debt, at June 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₩59.7b in cash offsetting this, leading to net cash of ₩21.9b.

A Look At MEDIPOST's Liabilities

Zooming in on the latest balance sheet data, we can see that MEDIPOST had liabilities of ₩59.3b due within 12 months and liabilities of ₩37.3b due beyond that. Offsetting this, it had ₩59.7b in cash and ₩10.9b in receivables that were due within 12 months. So it has liabilities totalling ₩26.0b more than its cash and near-term receivables, combined.

Given MEDIPOST has a market capitalization of ₩482.8b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, MEDIPOST 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 it is MEDIPOST'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 MEDIPOST's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is MEDIPOST?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that MEDIPOST had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩6.7b of cash and made a loss of ₩13b. While this does make the company a bit risky, it's important to remember it has net cash of ₩21.9b. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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.

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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