Is Csa Cosmic (KOSDAQ:083660) Using Too Much 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Csa Cosmic Co., Ltd. (KOSDAQ:083660) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Csa Cosmic

How Much Debt Does Csa Cosmic Carry?

You can click the graphic below for the historical numbers, but it shows that Csa Cosmic had ₩8.45b of debt in September 2024, down from ₩9.82b, one year before. But it also has ₩12.2b in cash to offset that, meaning it has ₩3.72b net cash.

How Strong Is Csa Cosmic's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Csa Cosmic had liabilities of ₩14.1b due within 12 months and liabilities of ₩777.7m due beyond that. On the other hand, it had cash of ₩12.2b and ₩6.20b worth of receivables due within a year. So it actually has ₩3.54b 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! When analysing debt levels, the balance sheet is the obvious place to start. But it is Csa Cosmic's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Csa Cosmic had a loss before interest and tax, and actually shrunk its revenue by 24%, to ₩39b. To be frank that doesn't bode well.

So How Risky Is Csa Cosmic?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Csa Cosmic had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩4.2b of cash and made a loss of ₩3.5b. But the saving grace is the ₩3.72b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Csa Cosmic that you should be aware of before investing here.

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.