Is BYON (KOSDAQ:032980) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that BYON Co., Ltd. (KOSDAQ:032980) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for BYON

What Is BYON's Net Debt?

The image below, which you can click on for greater detail, shows that BYON had debt of ₩7.60b at the end of September 2020, a reduction from ₩23.9b over a year. However, its balance sheet shows it holds ₩11.3b in cash, so it actually has ₩3.70b net cash.

How Healthy Is BYON's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BYON had liabilities of ₩13.6b due within 12 months and liabilities of ₩781.3m due beyond that. On the other hand, it had cash of ₩11.3b and ₩13.3b worth of receivables due within a year. So it actually has ₩10.2b more liquid assets than total liabilities.

This surplus suggests that BYON has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that BYON 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 BYON'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.

Over 12 months, BYON saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is BYON?

Although BYON had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩1.3b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Case in point: We've spotted 4 warning signs for BYON you should be aware of, and 1 of them is a bit unpleasant.

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. 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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