Is Mobidays (KOSDAQ:363260) Using Too Much 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.' 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. As with many other companies Mobidays Inc. (KOSDAQ:363260) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Mobidays

What Is Mobidays's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Mobidays had ₩17.2b of debt, an increase on ₩3.23b, over one year. But on the other hand it also has ₩27.2b in cash, leading to a ₩10.0b net cash position.

How Strong Is Mobidays' Balance Sheet?

We can see from the most recent balance sheet that Mobidays had liabilities of ₩77.1b falling due within a year, and liabilities of ₩1.49b due beyond that. Offsetting this, it had ₩27.2b in cash and ₩51.9b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Mobidays' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩74.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Mobidays 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 it is Mobidays'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, Mobidays reported revenue of ₩33b, which is a gain of 129%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is Mobidays?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Mobidays had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩3.0b and booked a ₩2.4b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩10.0b. That means it could keep spending at its current rate for more than two years. Importantly, Mobidays's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 3 warning signs for Mobidays (2 shouldn't be ignored!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.