Is NEXTEEL (KRX:092790) 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 can see that NEXTEEL Co., Ltd. (KRX:092790) does use debt in its business. But is this debt a concern to shareholders?

Our free stock report includes 3 warning signs investors should be aware of before investing in NEXTEEL. Read for free now.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is NEXTEEL's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 NEXTEEL had debt of ₩102.6b, up from ₩69.7b in one year. However, it does have ₩124.0b in cash offsetting this, leading to net cash of ₩21.4b.

How Strong Is NEXTEEL's Balance Sheet?

We can see from the most recent balance sheet that NEXTEEL had liabilities of ₩161.5b falling due within a year, and liabilities of ₩65.4b due beyond that. Offsetting these obligations, it had cash of ₩124.0b as well as receivables valued at ₩49.6b due within 12 months. So it has liabilities totalling ₩53.3b more than its cash and near-term receivables, combined.

Of course, NEXTEEL has a market capitalization of ₩327.4b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, NEXTEEL boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for NEXTEEL

The modesty of its debt load may become crucial for NEXTEEL if management cannot prevent a repeat of the 60% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But it is NEXTEEL'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While NEXTEEL has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, NEXTEEL's free cash flow amounted to 35% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although NEXTEEL's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩21.4b. So we are not troubled with NEXTEEL's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that NEXTEEL is showing 3 warning signs in our investment analysis , and 2 of those are 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.