NEORIGIN (KOSDAQ:094860) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies NEORIGIN Co., Ltd. (KOSDAQ:094860) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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. 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 NEORIGIN's Net Debt?

As you can see below, at the end of March 2025, NEORIGIN had ₩6.87b of debt, up from ₩6.19b a year ago. Click the image for more detail. However, it does have ₩3.84b in cash offsetting this, leading to net debt of about ₩3.03b.

How Healthy Is NEORIGIN's Balance Sheet?

The latest balance sheet data shows that NEORIGIN had liabilities of ₩15.4b due within a year, and liabilities of ₩53.3m falling due after that. On the other hand, it had cash of ₩3.84b and ₩11.5b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to NEORIGIN's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩28.8b company is short on cash, but still worth keeping an eye on the balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But it is NEORIGIN's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for NEORIGIN

In the last year NEORIGIN wasn't profitable at an EBIT level, but managed to grow its revenue by 103%, to ₩37b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

While we can certainly appreciate NEORIGIN's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable ₩5.7b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 ₩6.5b in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with NEORIGIN (including 2 which are significant) .

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.