Does VALOFELtd (KOSDAQ:331520) Have A Healthy Balance Sheet?

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.' 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 can see that VALOFE Co.,Ltd (KOSDAQ:331520) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for VALOFELtd

What Is VALOFELtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 VALOFELtd had debt of ₩8.31b, up from ₩6.05b in one year. However, it does have ₩25.1b in cash offsetting this, leading to net cash of ₩16.8b.

A Look At VALOFELtd's Liabilities

The latest balance sheet data shows that VALOFELtd had liabilities of ₩12.5b due within a year, and liabilities of ₩3.39b falling due after that. Offsetting this, it had ₩25.1b in cash and ₩7.58b in receivables that were due within 12 months. So it can boast ₩16.7b more liquid assets than total liabilities.

This luscious liquidity implies that VALOFELtd's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, VALOFELtd 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 VALOFELtd 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 VALOFELtd wasn't profitable at an EBIT level, but managed to grow its revenue by 5.7%, to ₩35b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is VALOFELtd?

While VALOFELtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₩163m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. 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. For instance, we've identified 2 warning signs for VALOFELtd (1 is potentially serious) 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.