Is BLUEMTEC (KOSDAQ:439580) A Risky Investment?

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 can see that BLUEMTEC Co., Ltd. (KOSDAQ:439580) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is BLUEMTEC's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 BLUEMTEC had ₩33.2b of debt, an increase on ₩30.1b, over one year. However, it also had ₩16.0b in cash, and so its net debt is ₩17.3b.

A Look At BLUEMTEC's Liabilities

We can see from the most recent balance sheet that BLUEMTEC had liabilities of ₩56.0b falling due within a year, and liabilities of ₩12.5b due beyond that. On the other hand, it had cash of ₩16.0b and ₩13.2b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩39.3b.

This deficit isn't so bad because BLUEMTEC is worth ₩100.6b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is BLUEMTEC'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 .

View our latest analysis for BLUEMTEC

Over 12 months, BLUEMTEC reported revenue of ₩133b, which is a gain of 17%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months BLUEMTEC produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩7.0b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩15b of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. 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 BLUEMTEC (of which 2 are potentially serious!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.