Health Check: How Prudently Does RaemongRaein (KOSDAQ:200350) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that RaemongRaein Co., Ltd. (KOSDAQ:200350) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 RaemongRaein

What Is RaemongRaein's Debt?

You can click the graphic below for the historical numbers, but it shows that RaemongRaein had ₩4.00b of debt in March 2024, down from ₩11.2b, one year before. But on the other hand it also has ₩49.1b in cash, leading to a ₩45.1b net cash position.

A Look At RaemongRaein's Liabilities

According to the last reported balance sheet, RaemongRaein had liabilities of ₩4.33b due within 12 months, and liabilities of ₩2.53b due beyond 12 months. Offsetting these obligations, it had cash of ₩49.1b as well as receivables valued at ₩3.36b due within 12 months. So it can boast ₩45.6b more liquid assets than total liabilities.

This surplus strongly suggests that RaemongRaein has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that RaemongRaein has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is RaemongRaein's earnings that will influence how the balance sheet holds up in the future. 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 RaemongRaein had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₩37b. We would much prefer see growth.

So How Risky Is RaemongRaein?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months RaemongRaein lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩5.3b and booked a ₩9.4b accounting loss. But the saving grace is the ₩45.1b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for RaemongRaein you should be aware of, and 2 of them are concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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

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.