Is ezCaretech (KOSDAQ:099750) A Risky Investment?

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. We can see that ezCaretech Co., LTD (KOSDAQ:099750) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ezCaretech

What Is ezCaretech's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 ezCaretech had debt of ₩4.10b, up from none in one year. But on the other hand it also has ₩23.1b in cash, leading to a ₩19.0b net cash position.

How Healthy Is ezCaretech's Balance Sheet?

According to the last reported balance sheet, ezCaretech had liabilities of ₩21.3b due within 12 months, and liabilities of ₩6.18b due beyond 12 months. On the other hand, it had cash of ₩23.1b and ₩15.1b worth of receivables due within a year. So it actually has ₩10.7b more liquid assets than total liabilities.

This surplus suggests that ezCaretech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, ezCaretech 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 ezCaretech'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.

In the last year ezCaretech wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to ₩76b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is ezCaretech?

Although ezCaretech had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩6.7b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 26% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. For riskier companies like ezCaretech I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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