Is ASTORYLtd (KOSDAQ:241840) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that ASTORY Co.,Ltd (KOSDAQ:241840) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is ASTORYLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that ASTORYLtd had ₩4.90b of debt in December 2024, down from ₩11.8b, one year before. However, it does have ₩21.9b in cash offsetting this, leading to net cash of ₩17.0b.

A Look At ASTORYLtd's Liabilities

We can see from the most recent balance sheet that ASTORYLtd had liabilities of ₩14.6b falling due within a year, and liabilities of ₩609.8m due beyond that. On the other hand, it had cash of ₩21.9b and ₩548.7m worth of receivables due within a year. So it actually has ₩7.24b more liquid assets than total liabilities.

This short term liquidity is a sign that ASTORYLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that ASTORYLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ASTORYLtd 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.

View our latest analysis for ASTORYLtd

Over 12 months, ASTORYLtd made a loss at the EBIT level, and saw its revenue drop to ₩15b, which is a fall of 74%. That makes us nervous, to say the least.

So How Risky Is ASTORYLtd?

Although ASTORYLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩21b. 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. However, not all investment risk resides within the balance sheet - far from it. For example ASTORYLtd has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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.