Is NANOCMSLtd (KOSDAQ:247660) Using Debt Sensibly?

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. As with many other companies NANOCMS Co.,Ltd (KOSDAQ:247660) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for NANOCMSLtd

What Is NANOCMSLtd's Debt?

The image below, which you can click on for greater detail, shows that NANOCMSLtd had debt of ₩8.98b at the end of June 2024, a reduction from ₩13.1b over a year. However, it does have ₩17.4b in cash offsetting this, leading to net cash of ₩8.45b.

How Strong Is NANOCMSLtd's Balance Sheet?

The latest balance sheet data shows that NANOCMSLtd had liabilities of ₩13.7b due within a year, and liabilities of ₩1.09b falling due after that. Offsetting these obligations, it had cash of ₩17.4b as well as receivables valued at ₩468.2m due within 12 months. So it can boast ₩3.13b more liquid assets than total liabilities.

This short term liquidity is a sign that NANOCMSLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that NANOCMSLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is NANOCMSLtd'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.

In the last year NANOCMSLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 7.1%, to ₩5.6b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is NANOCMSLtd?

Although NANOCMSLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩345m. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. We've identified 3 warning signs with NANOCMSLtd (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.