Is CTK (KOSDAQ:260930) Using Debt Sensibly?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that CTK Co., Ltd (KOSDAQ:260930) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is CTK's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 CTK had debt of ₩28.8b, up from ₩9.97b in one year. However, its balance sheet shows it holds ₩35.9b in cash, so it actually has ₩7.16b net cash.

A Look At CTK's Liabilities

The latest balance sheet data shows that CTK had liabilities of ₩35.6b due within a year, and liabilities of ₩21.9b falling due after that. On the other hand, it had cash of ₩35.9b and ₩25.4b worth of receivables due within a year. So it actually has ₩3.93b more liquid assets than total liabilities.

This surplus suggests that CTK has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that CTK has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CTK's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for CTK

Over 12 months, CTK reported revenue of ₩85b, which is a gain of 2.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is CTK?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months CTK lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩28b of cash and made a loss of ₩2.8b. With only ₩7.16b on the balance sheet, it would appear that its going to need to raise capital again soon. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for CTK (of which 2 are potentially serious!) you should know about.

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.

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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.