Is NANOCMSLtd (KOSDAQ:247660) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that NANOCMS Co.,Ltd (KOSDAQ:247660) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at 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 at September 2023 NANOCMSLtd had debt of ₩13.5b, up from ₩12.0b in one year. But on the other hand it also has ₩26.8b in cash, leading to a ₩13.3b net cash position.

How Healthy Is NANOCMSLtd's Balance Sheet?

We can see from the most recent balance sheet that NANOCMSLtd had liabilities of ₩19.1b falling due within a year, and liabilities of ₩3.92b due beyond that. On the other hand, it had cash of ₩26.8b and ₩774.9m worth of receivables due within a year. So it can boast ₩4.54b more liquid assets than total liabilities.

This surplus suggests that NANOCMSLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that NANOCMSLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is NANOCMSLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year NANOCMSLtd had a loss before interest and tax, and actually shrunk its revenue by 3.1%, to ₩5.9b. That's not what we would hope to see.

So How Risky Is NANOCMSLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that NANOCMSLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩2.4b and booked a ₩3.1b accounting loss. But the saving grace is the ₩13.3b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that NANOCMSLtd is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.