Does Raphas (KOSDAQ:214260) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Raphas Co., Ltd. (KOSDAQ:214260) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Raphas

How Much Debt Does Raphas Carry?

You can click the graphic below for the historical numbers, but it shows that Raphas had ₩12.0b of debt in September 2020, down from ₩15.4b, one year before. But on the other hand it also has ₩21.6b in cash, leading to a ₩9.59b net cash position.

A Look At Raphas' Liabilities

Zooming in on the latest balance sheet data, we can see that Raphas had liabilities of ₩6.39b due within 12 months and liabilities of ₩10.0b due beyond that. Offsetting these obligations, it had cash of ₩21.6b as well as receivables valued at ₩2.93b due within 12 months. So it can boast ₩8.13b more liquid assets than total liabilities.

This surplus suggests that Raphas has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Raphas 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 Raphas'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 Raphas had a loss before interest and tax, and actually shrunk its revenue by 17%, to ₩16b. That's not what we would hope to see.

So How Risky Is Raphas?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Raphas had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩4.9b and booked a ₩4.3b accounting loss. Given it only has net cash of ₩9.59b, the company may need to raise more capital if it doesn't reach break-even soon. 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. 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. For instance, we've identified 2 warning signs for Raphas (1 is a bit concerning) you should be aware of.

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. 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.
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