Is MEDIPOST (KOSDAQ:078160) Weighed On By Its Debt Load?

By
Simply Wall St
Published
March 11, 2021
KOSDAQ:A078160
Source: Shutterstock

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 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. Importantly, MEDIPOST Co., Ltd. (KOSDAQ:078160) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for MEDIPOST

What Is MEDIPOST's Net Debt?

As you can see below, MEDIPOST had ₩39.3b of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has ₩58.2b in cash, leading to a ₩18.8b net cash position.

debt-equity-history-analysis
KOSDAQ:A078160 Debt to Equity History March 11th 2021

How Strong Is MEDIPOST's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MEDIPOST had liabilities of ₩62.9b due within 12 months and liabilities of ₩36.3b due beyond that. Offsetting these obligations, it had cash of ₩58.2b as well as receivables valued at ₩10.4b due within 12 months. So its liabilities total ₩30.6b more than the combination of its cash and short-term receivables.

Given MEDIPOST has a market capitalization of ₩534.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, MEDIPOST boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year MEDIPOST wasn't profitable at an EBIT level, but managed to grow its revenue by 2.6%, to ₩47b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is MEDIPOST?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months MEDIPOST lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩5.0b of cash and made a loss of ₩17b. But the saving grace is the ₩18.8b on the balance sheet. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for MEDIPOST (of which 1 shouldn't be ignored!) you should know about.

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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