Does Mr. Blue (KOSDAQ:207760) Have A Healthy Balance Sheet?

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 Mr. Blue Corporation (KOSDAQ:207760) makes use of debt. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Mr. Blue

What Is Mr. Blue's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Mr. Blue had ₩4.69b of debt in September 2024, down from ₩18.0b, one year before. But on the other hand it also has ₩27.2b in cash, leading to a ₩22.5b net cash position.

A Look At Mr. Blue's Liabilities

According to the last reported balance sheet, Mr. Blue had liabilities of ₩28.7b due within 12 months, and liabilities of ₩10.7b due beyond 12 months. Offsetting this, it had ₩27.2b in cash and ₩7.47b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩4.73b.

Given Mr. Blue has a market capitalization of ₩94.2b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Mr. Blue also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mr. Blue'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.

Over 12 months, Mr. Blue made a loss at the EBIT level, and saw its revenue drop to ₩69b, which is a fall of 11%. We would much prefer see growth.

So How Risky Is Mr. Blue?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Mr. Blue lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩10b of cash and made a loss of ₩23b. Given it only has net cash of ₩22.5b, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Be aware that Mr. Blue is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.