Leaders Cosmetics (KOSDAQ:016100) Is Carrying A Fair Bit Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Leaders Cosmetics Co., Ltd. (KOSDAQ:016100) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Leaders Cosmetics's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Leaders Cosmetics had debt of ₩28.0b, up from ₩25.0b in one year. However, it does have ₩7.87b in cash offsetting this, leading to net debt of about ₩20.1b.

How Healthy Is Leaders Cosmetics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Leaders Cosmetics had liabilities of ₩34.0b due within 12 months and liabilities of ₩5.80b due beyond that. On the other hand, it had cash of ₩7.87b and ₩7.70b worth of receivables due within a year. So its liabilities total ₩24.3b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Leaders Cosmetics has a market capitalization of ₩47.7b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Leaders Cosmetics'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 Leaders Cosmetics

In the last year Leaders Cosmetics wasn't profitable at an EBIT level, but managed to grow its revenue by 5.9%, to ₩74b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Leaders Cosmetics produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩4.5b. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩8.6b of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Leaders Cosmetics you should be aware of.

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.