Health Check: How Prudently Does Csa Cosmic (KOSDAQ:083660) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies Csa Cosmic Co., Ltd. (KOSDAQ:083660) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Csa Cosmic

What Is Csa Cosmic's Debt?

As you can see below, Csa Cosmic had ₩9.23b of debt at March 2024, down from ₩11.0b a year prior. However, it does have ₩12.6b in cash offsetting this, leading to net cash of ₩3.35b.

A Look At Csa Cosmic's Liabilities

We can see from the most recent balance sheet that Csa Cosmic had liabilities of ₩16.6b falling due within a year, and liabilities of ₩591.0m due beyond that. Offsetting these obligations, it had cash of ₩12.6b as well as receivables valued at ₩7.20b due within 12 months. So it actually has ₩2.57b more liquid assets than total liabilities.

This short term liquidity is a sign that Csa Cosmic could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Csa Cosmic boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Csa Cosmic'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.

In the last year Csa Cosmic had a loss before interest and tax, and actually shrunk its revenue by 30%, to ₩41b. To be frank that doesn't bode well.

So How Risky Is Csa Cosmic?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Csa Cosmic had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩10b of cash and made a loss of ₩7.2b. But at least it has ₩3.35b on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For example, we've discovered 4 warning signs for Csa Cosmic (3 are a bit concerning!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com