CLASSYS (KOSDAQ:214150) Seems To Use Debt Rather Sparingly

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 CLASSYS Inc. (KOSDAQ:214150) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is CLASSYS's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 CLASSYS had debt of ₩91.6b, up from ₩63.8b in one year. However, its balance sheet shows it holds ₩174.4b in cash, so it actually has ₩82.8b net cash.

A Look At CLASSYS' Liabilities

According to the last reported balance sheet, CLASSYS had liabilities of ₩71.4b due within 12 months, and liabilities of ₩93.8b due beyond 12 months. Offsetting these obligations, it had cash of ₩174.4b as well as receivables valued at ₩43.5b due within 12 months. So it actually has ₩52.8b more liquid assets than total liabilities.

Having regard to CLASSYS' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩3.98t company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, CLASSYS boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for CLASSYS

In addition to that, we're happy to report that CLASSYS has boosted its EBIT by 40%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CLASSYS's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. CLASSYS may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, CLASSYS recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case CLASSYS has ₩82.8b in net cash and a decent-looking balance sheet. And we liked the look of last year's 40% year-on-year EBIT growth. So is CLASSYS's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of CLASSYS's earnings per share history for free.

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. 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.