Would ENVIONEERLtd (KOSDAQ:317870) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies ENVIONEER Co.,Ltd. (KOSDAQ:317870) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for ENVIONEERLtd

What Is ENVIONEERLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 ENVIONEERLtd had debt of ₩9.76b, up from ₩7.86b in one year. On the flip side, it has ₩8.48b in cash leading to net debt of about ₩1.28b.

How Healthy Is ENVIONEERLtd's Balance Sheet?

The latest balance sheet data shows that ENVIONEERLtd had liabilities of ₩9.29b due within a year, and liabilities of ₩8.78b falling due after that. On the other hand, it had cash of ₩8.48b and ₩1.80b worth of receivables due within a year. So it has liabilities totalling ₩7.79b more than its cash and near-term receivables, combined.

Since publicly traded ENVIONEERLtd shares are worth a total of ₩134.3b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, ENVIONEERLtd has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if ENVIONEERLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year ENVIONEERLtd had a loss before interest and tax, and actually shrunk its revenue by 4.8%, to ₩14b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months ENVIONEERLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩1.2b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩22b 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that ENVIONEERLtd is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

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.