We Think Green Plus (KOSDAQ:186230) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Green Plus Co., Ltd. (KOSDAQ:186230) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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.

See our latest analysis for Green Plus

How Much Debt Does Green Plus Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Green Plus had debt of ₩42.7b, up from ₩39.6b in one year. On the flip side, it has ₩2.98b in cash leading to net debt of about ₩39.7b.

How Strong Is Green Plus' Balance Sheet?

The latest balance sheet data shows that Green Plus had liabilities of ₩46.2b due within a year, and liabilities of ₩8.57b falling due after that. Offsetting this, it had ₩2.98b in cash and ₩17.2b in receivables that were due within 12 months. So it has liabilities totalling ₩34.6b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Green Plus is worth ₩86.0b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Green Plus'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.

Over 12 months, Green Plus made a loss at the EBIT level, and saw its revenue drop to ₩67b, which is a fall of 7.8%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Green Plus produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩7.3b. 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. However, it doesn't help that it burned through ₩10b of cash over the last year. 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. For example - Green Plus has 2 warning signs we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.