KPM TECH (KOSDAQ:042040) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, '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. As with many other companies KPM TECH Co., Ltd. (KOSDAQ:042040) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 KPM TECH

What Is KPM TECH's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 KPM TECH had ₩31.1b of debt, an increase on ₩21.9b, over one year. However, it also had ₩17.1b in cash, and so its net debt is ₩14.0b.

A Look At KPM TECH's Liabilities

Zooming in on the latest balance sheet data, we can see that KPM TECH had liabilities of ₩35.4b due within 12 months and liabilities of ₩3.56b due beyond that. On the other hand, it had cash of ₩17.1b and ₩14.2b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩7.64b.

Given KPM TECH has a market capitalization of ₩60.7b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since KPM TECH will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, KPM TECH reported revenue of ₩42b, which is a gain of 5.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, KPM TECH had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩9.9b. 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. Another cause for caution is that is bled ₩12b in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with KPM TECH .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.