We Think CLASSYS (KOSDAQ:214150) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that CLASSYS Inc. (KOSDAQ:214150) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for CLASSYS

How Much Debt Does CLASSYS Carry?

The chart below, which you can click on for greater detail, shows that CLASSYS had ₩62.6b in debt in September 2024; about the same as the year before. But on the other hand it also has ₩109.7b in cash, leading to a ₩47.1b net cash position.

How Strong Is CLASSYS' Balance Sheet?

We can see from the most recent balance sheet that CLASSYS had liabilities of ₩91.2b falling due within a year, and liabilities of ₩529.0m due beyond that. Offsetting this, it had ₩109.7b in cash and ₩72.2b in receivables that were due within 12 months. So it can boast ₩90.2b more liquid assets than total liabilities.

This surplus suggests that CLASSYS has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that CLASSYS has more cash than debt is arguably a good indication that it can manage its debt safely.

Also positive, CLASSYS grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if CLASSYS can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While CLASSYS has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, CLASSYS reported free cash flow worth 16% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that CLASSYS has net cash of ₩47.1b, as well as more liquid assets than liabilities. And we liked the look of last year's 25% year-on-year EBIT growth. So is CLASSYS's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in CLASSYS, you may well want to click here to check an interactive graph of its earnings per share history.

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.