Does HANBIT SOFT (KOSDAQ:047080) Have A Healthy Balance Sheet?

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. Importantly, HANBIT SOFT Inc. (KOSDAQ:047080) 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for HANBIT SOFT

How Much Debt Does HANBIT SOFT Carry?

You can click the graphic below for the historical numbers, but it shows that HANBIT SOFT had ₩4.45b of debt in March 2024, down from ₩10.3b, one year before. However, its balance sheet shows it holds ₩12.0b in cash, so it actually has ₩7.54b net cash.

A Look At HANBIT SOFT's Liabilities

We can see from the most recent balance sheet that HANBIT SOFT had liabilities of ₩15.2b falling due within a year, and liabilities of ₩1.36b due beyond that. Offsetting these obligations, it had cash of ₩12.0b as well as receivables valued at ₩3.92b due within 12 months. So its liabilities total ₩600.1m more than the combination of its cash and short-term receivables.

Having regard to HANBIT SOFT's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩40.5b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, HANBIT SOFT also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since HANBIT SOFT will need earnings to service that debt. 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 HANBIT SOFT had a loss before interest and tax, and actually shrunk its revenue by 57%, to ₩23b. That makes us nervous, to say the least.

So How Risky Is HANBIT SOFT?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months HANBIT SOFT lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩6.5b of cash and made a loss of ₩7.7b. Given it only has net cash of ₩7.54b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 2 warning signs for HANBIT SOFT you should be aware of, and 1 of them can't be ignored.

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.

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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.