Is Dexter StudiosLtd (KOSDAQ:206560) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Dexter StudiosLtd

What Is Dexter StudiosLtd's Net Debt?

As you can see below, at the end of March 2024, Dexter StudiosLtd had ₩14.8b of debt, up from ₩4.83b a year ago. Click the image for more detail. But on the other hand it also has ₩39.4b in cash, leading to a ₩24.6b net cash position.

How Strong Is Dexter StudiosLtd's Balance Sheet?

The latest balance sheet data shows that Dexter StudiosLtd had liabilities of ₩25.3b due within a year, and liabilities of ₩7.65b falling due after that. On the other hand, it had cash of ₩39.4b and ₩6.38b worth of receivables due within a year. So it can boast ₩12.8b more liquid assets than total liabilities.

This short term liquidity is a sign that Dexter StudiosLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Dexter StudiosLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Dexter StudiosLtd will need earnings to service that debt. 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 5.2%, to ₩63b. We would much prefer see growth.

So How Risky Is Dexter StudiosLtd?

Although Dexter StudiosLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩5.8b. 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

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