Cosmax Nbt (KOSDAQ:222040) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Cosmax Nbt, Inc. (KOSDAQ:222040) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Cosmax Nbt

What Is Cosmax Nbt's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Cosmax Nbt had ₩195.6b of debt, an increase on ₩175.5b, over one year. However, it also had ₩66.7b in cash, and so its net debt is ₩128.9b.

A Look At Cosmax Nbt's Liabilities

The latest balance sheet data shows that Cosmax Nbt had liabilities of ₩211.3b due within a year, and liabilities of ₩33.8b falling due after that. Offsetting these obligations, it had cash of ₩66.7b as well as receivables valued at ₩38.1b due within 12 months. So its liabilities total ₩140.4b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₩166.5b, so it does suggest shareholders should keep an eye on Cosmax Nbt's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Cosmax Nbt can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Cosmax Nbt reported revenue of ₩267b, which is a gain of 37%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Cosmax Nbt still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩2.3b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₩12b into a profit. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Cosmax Nbt has 1 warning sign we think 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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