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. We note that Playgram Co., Ltd. (KRX:009810) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Playgram
What Is Playgram's Debt?
As you can see below, Playgram had ₩33.8b of debt at March 2024, down from ₩47.3b a year prior. But it also has ₩64.6b in cash to offset that, meaning it has ₩30.8b net cash.
A Look At Playgram's Liabilities
According to the last reported balance sheet, Playgram had liabilities of ₩91.3b due within 12 months, and liabilities of ₩10.1b due beyond 12 months. Offsetting this, it had ₩64.6b in cash and ₩48.5b in receivables that were due within 12 months. So it actually has ₩11.7b more liquid assets than total liabilities.
This surplus suggests that Playgram has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Playgram boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Playgram'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.
Over 12 months, Playgram reported revenue of ₩224b, which is a gain of 31%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Playgram?
While Playgram lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩7.1b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 31% is a good sign. We'd see further strong growth as an optimistic indication. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Playgram (of which 2 make us uncomfortable!) you should know about.
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.
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About KOSE:A009810
Playgram
Engages in the maintenance, repair, and operations; and video content businesses in South Korea and internationally.
Excellent balance sheet low.
