Does Genic (KOSDAQ:123330) Have A Healthy Balance Sheet?

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.' 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. Importantly, Genic Co., Ltd. (KOSDAQ:123330) does carry debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Genic's Net Debt?

The image below, which you can click on for greater detail, shows that Genic had debt of ₩5.00b at the end of March 2025, a reduction from ₩10.0b over a year. However, it does have ₩5.62b in cash offsetting this, leading to net cash of ₩623.6m.

A Look At Genic's Liabilities

The latest balance sheet data shows that Genic had liabilities of ₩15.1b due within a year, and liabilities of ₩745.2m falling due after that. Offsetting these obligations, it had cash of ₩5.62b as well as receivables valued at ₩12.0b due within 12 months. So it can boast ₩1.75b more liquid assets than total liabilities.

This state of affairs indicates that Genic's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩316.1b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Genic has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Genic

Although Genic made a loss at the EBIT level, last year, it was also good to see that it generated ₩10b in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Genic 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Genic has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent year, Genic recorded free cash flow of 33% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Genic has ₩623.6m in net cash and a decent-looking balance sheet. So we are not troubled with Genic's debt use. 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. We've identified 2 warning signs with Genic (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.