Does Dragonfly GF (KOSDAQ:030350) Have A Healthy Balance Sheet?

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. As with many other companies Dragonfly GF Co., Ltd (KOSDAQ:030350) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Dragonfly GF

How Much Debt Does Dragonfly GF Carry?

As you can see below, Dragonfly GF had ₩2.12b of debt at December 2023, down from ₩4.93b a year prior. However, it also had ₩1.90b in cash, and so its net debt is ₩216.2m.

A Look At Dragonfly GF's Liabilities

The latest balance sheet data shows that Dragonfly GF had liabilities of ₩8.51b due within a year, and liabilities of ₩748.8m falling due after that. Offsetting these obligations, it had cash of ₩1.90b as well as receivables valued at ₩6.61b due within 12 months. So it has liabilities totalling ₩746.0m more than its cash and near-term receivables, combined.

This state of affairs indicates that Dragonfly GF's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩37.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Dragonfly GF 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 it is Dragonfly GF'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 Dragonfly GF wasn't profitable at an EBIT level, but managed to grow its revenue by 134%, to ₩17b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

While we can certainly appreciate Dragonfly GF's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable ₩19b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩15b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For instance, we've identified 5 warning signs for Dragonfly GF (2 are a bit unpleasant) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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

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.