Wysiwyg Studios (KOSDAQ:299900) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Wysiwyg Studios Co., Ltd. (KOSDAQ:299900) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Wysiwyg Studios

How Much Debt Does Wysiwyg Studios Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Wysiwyg Studios had ₩26.8b of debt, an increase on ₩14.3b, over one year. However, it also had ₩17.4b in cash, and so its net debt is ₩9.48b.

A Look At Wysiwyg Studios' Liabilities

Zooming in on the latest balance sheet data, we can see that Wysiwyg Studios had liabilities of ₩36.3b due within 12 months and liabilities of ₩1.85b due beyond that. Offsetting this, it had ₩17.4b in cash and ₩10.8b in receivables that were due within 12 months. So it has liabilities totalling ₩10.0b more than its cash and near-term receivables, combined.

Since publicly traded Wysiwyg Studios shares are worth a total of ₩226.6b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. 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 reported revenue of ₩76b, which is a gain of 142%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Wysiwyg Studios still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩663m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩11b of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. For example, we've discovered 2 warning signs for Wysiwyg Studios that you should be aware of before investing here.

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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