These 4 Measures Indicate That C&C International (KOSDAQ:352480) Is Using Debt Reasonably Well

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.' 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. As with many other companies C&C International Co., Ltd. (KOSDAQ:352480) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for C&C International

What Is C&C International's Net Debt?

As you can see below, at the end of September 2024, C&C International had ₩55.8b of debt, up from ₩25.6b a year ago. Click the image for more detail. But it also has ₩92.7b in cash to offset that, meaning it has ₩36.8b net cash.

A Look At C&C International's Liabilities

Zooming in on the latest balance sheet data, we can see that C&C International had liabilities of ₩72.7b due within 12 months and liabilities of ₩27.7b due beyond that. On the other hand, it had cash of ₩92.7b and ₩31.6b worth of receivables due within a year. So it can boast ₩23.9b more liquid assets than total liabilities.

This surplus suggests that C&C International has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, C&C International boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that C&C International has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine C&C International's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While C&C International 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 three years, C&C International recorded free cash flow of 22% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that C&C International has net cash of ₩36.8b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 37% over the last year. So is C&C International's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for C&C International 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. 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.