Is Sphere (KOSDAQ:347700) Weighed On By Its Debt Load?

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 Sphere Corp. (KOSDAQ:347700) 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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sphere's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Sphere had debt of ₩16.6b, up from ₩3.57b in one year. But on the other hand it also has ₩33.7b in cash, leading to a ₩17.1b net cash position.

How Healthy Is Sphere's Balance Sheet?

We can see from the most recent balance sheet that Sphere had liabilities of ₩51.9b falling due within a year, and liabilities of ₩1.97b due beyond that. On the other hand, it had cash of ₩33.7b and ₩17.7b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩2.47b.

Having regard to Sphere's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩355.0b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Sphere also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sphere 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.

Check out our latest analysis for Sphere

In the last year Sphere had a loss before interest and tax, and actually shrunk its revenue by 83%, to ₩3.8b. To be frank that doesn't bode well.

So How Risky Is Sphere?

Although Sphere had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩4.1b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Sphere has 4 warning signs (and 2 which can't be ignored) we think you should know about.

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.