Does Wysiwyg Studios (KOSDAQ:299900) Have A Healthy Balance Sheet?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Wysiwyg Studios Co., Ltd. (KOSDAQ:299900) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Wysiwyg Studios

How Much Debt Does Wysiwyg Studios Carry?

As you can see below, Wysiwyg Studios had ₩27.8b of debt at June 2024, down from ₩114.2b a year prior. On the flip side, it has ₩24.2b in cash leading to net debt of about ₩3.64b.

A Look At Wysiwyg Studios' Liabilities

We can see from the most recent balance sheet that Wysiwyg Studios had liabilities of ₩102.0b falling due within a year, and liabilities of ₩14.1b due beyond that. Offsetting this, it had ₩24.2b in cash and ₩12.2b in receivables that were due within 12 months. So it has liabilities totalling ₩79.7b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Wysiwyg Studios has a market capitalization of ₩213.3b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Wysiwyg Studios'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, Wysiwyg Studios made a loss at the EBIT level, and saw its revenue drop to ₩75b, which is a fall of 55%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Wysiwyg Studios's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₩30b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₩14b and the profit of ₩18b. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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. Case in point: We've spotted 1 warning sign for Wysiwyg Studios you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.