Health Check: How Prudently Does Com2uS Holdings (KOSDAQ:063080) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Com2uS Holdings Corporation (KOSDAQ:063080) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

How Much Debt Does Com2uS Holdings Carry?

As you can see below, at the end of December 2024, Com2uS Holdings had ₩189.1b of debt, up from ₩175.9b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩48.6b, its net debt is less, at about ₩140.5b.

How Healthy Is Com2uS Holdings' Balance Sheet?

According to the last reported balance sheet, Com2uS Holdings had liabilities of ₩214.3b due within 12 months, and liabilities of ₩116.3b due beyond 12 months. Offsetting these obligations, it had cash of ₩48.6b as well as receivables valued at ₩12.4b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩269.5b.

This deficit casts a shadow over the ₩125.7b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Com2uS Holdings would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Com2uS Holdings 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 .

View our latest analysis for Com2uS Holdings

Over 12 months, Com2uS Holdings made a loss at the EBIT level, and saw its revenue drop to ₩149b, which is a fall of 2.5%. That's not what we would hope to see.

Caveat Emptor

Importantly, Com2uS Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩13b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of ₩4.1b over the last twelve months. That means it's on the risky side of things. 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 3 warning signs for Com2uS Holdings you should be aware of, and 2 of them are potentially serious.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.