Is Enterpartners (KOSDAQ:058450) A Risky Investment?

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.' 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. Importantly, Enterpartners Co., LTD (KOSDAQ:058450) does carry 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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Enterpartners

What Is Enterpartners's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Enterpartners had debt of ₩11.9b, up from ₩9.12b in one year. However, it also had ₩10.5b in cash, and so its net debt is ₩1.40b.

How Healthy Is Enterpartners' Balance Sheet?

The latest balance sheet data shows that Enterpartners had liabilities of ₩14.8b due within a year, and liabilities of ₩2.74b falling due after that. On the other hand, it had cash of ₩10.5b and ₩5.42b worth of receivables due within a year. So it has liabilities totalling ₩1.60b more than its cash and near-term receivables, combined.

Since publicly traded Enterpartners shares are worth a total of ₩42.2b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Enterpartners'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, Enterpartners made a loss at the EBIT level, and saw its revenue drop to ₩11b, which is a fall of 5.7%. We would much prefer see growth.

Caveat Emptor

Importantly, Enterpartners had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩6.4b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩4.4b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Enterpartners (of which 1 is significant!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.