We Think Soop (KOSDAQ:067160) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Soop Co., Ltd. (KOSDAQ:067160) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Soop

What Is Soop's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Soop had ₩8.15b of debt, an increase on ₩500.0m, over one year. But it also has ₩373.2b in cash to offset that, meaning it has ₩365.1b net cash.

How Strong Is Soop's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Soop had liabilities of ₩284.0b due within 12 months and liabilities of ₩9.94b due beyond that. Offsetting these obligations, it had cash of ₩373.2b as well as receivables valued at ₩112.0b due within 12 months. So it actually has ₩191.3b more liquid assets than total liabilities.

It's good to see that Soop has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Soop boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Soop grew its EBIT by 29% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Soop's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Soop 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. Happily for any shareholders, Soop actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Soop has ₩365.1b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 118% of that EBIT to free cash flow, bringing in ₩125b. So is Soop's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Soop, you may well want to click here to check an interactive graph of its earnings per share history.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

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