Is Dexter StudiosLtd (KOSDAQ:206560) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Dexter Studios Co.,Ltd. (KOSDAQ:206560) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Dexter StudiosLtd

What Is Dexter StudiosLtd's Debt?

As you can see below, at the end of September 2024, Dexter StudiosLtd had ₩14.5b of debt, up from ₩4.80b a year ago. Click the image for more detail. But it also has ₩33.7b in cash to offset that, meaning it has ₩19.2b net cash.

A Look At Dexter StudiosLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Dexter StudiosLtd had liabilities of ₩27.5b due within 12 months and liabilities of ₩6.88b due beyond that. On the other hand, it had cash of ₩33.7b and ₩7.92b worth of receivables due within a year. So it actually has ₩7.24b more liquid assets than total liabilities.

This surplus suggests that Dexter StudiosLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Dexter StudiosLtd has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Dexter StudiosLtd'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 Dexter StudiosLtd had a loss before interest and tax, and actually shrunk its revenue by 30%, to ₩52b. That makes us nervous, to say the least.

So How Risky Is Dexter StudiosLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Dexter StudiosLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩3.4b of cash and made a loss of ₩7.1b. While this does make the company a bit risky, it's important to remember it has net cash of ₩19.2b. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Dexter StudiosLtd you should know about.

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.

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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.