Here's Why NANOBRICK (KOSDAQ:286750) Can Afford Some Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, NANOBRICK Co., Ltd. (KOSDAQ:286750) does carry debt. But should shareholders be worried about its use of debt?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for NANOBRICK

How Much Debt Does NANOBRICK Carry?

As you can see below, NANOBRICK had ₩6.95b of debt at March 2024, down from ₩10.8b a year prior. On the flip side, it has ₩5.29b in cash leading to net debt of about ₩1.66b.

How Healthy Is NANOBRICK's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NANOBRICK had liabilities of ₩11.5b due within 12 months and liabilities of ₩3.32b due beyond that. On the other hand, it had cash of ₩5.29b and ₩866.0m worth of receivables due within a year. So it has liabilities totalling ₩8.64b more than its cash and near-term receivables, combined.

This deficit isn't so bad because NANOBRICK is worth ₩31.2b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since NANOBRICK 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.

In the last year NANOBRICK wasn't profitable at an EBIT level, but managed to grow its revenue by 43%, to ₩9.4b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though NANOBRICK managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩1.4b. 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 ₩577m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with NANOBRICK (including 1 which is a bit unpleasant) .

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.

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