Is FNC ENTERTAINMENT (KOSDAQ:173940) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that FNC ENTERTAINMENT Co., Ltd. (KOSDAQ:173940) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for FNC ENTERTAINMENT

How Much Debt Does FNC ENTERTAINMENT Carry?

The image below, which you can click on for greater detail, shows that FNC ENTERTAINMENT had debt of ₩13.3b at the end of September 2020, a reduction from ₩15.2b over a year. But it also has ₩72.2b in cash to offset that, meaning it has ₩58.8b net cash.

How Strong Is FNC ENTERTAINMENT's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FNC ENTERTAINMENT had liabilities of ₩58.8b due within 12 months and liabilities of ₩12.5b due beyond that. Offsetting this, it had ₩72.2b in cash and ₩6.52b in receivables that were due within 12 months. So it can boast ₩7.40b more liquid assets than total liabilities.

This short term liquidity is a sign that FNC ENTERTAINMENT could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, FNC ENTERTAINMENT boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine FNC ENTERTAINMENT's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, FNC ENTERTAINMENT reported revenue of ₩81b, which is a gain of 7.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is FNC ENTERTAINMENT?

Although FNC ENTERTAINMENT had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩11b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for FNC ENTERTAINMENT you should know about.

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. 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.
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