Does 4by4 (KOSDAQ:389140) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 4by4 Inc (KOSDAQ:389140) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, 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.

Check out our latest analysis for 4by4

How Much Debt Does 4by4 Carry?

As you can see below, at the end of September 2024, 4by4 had ₩14.6b of debt, up from ₩3.73b a year ago. Click the image for more detail. However, it does have ₩13.4b in cash offsetting this, leading to net debt of about ₩1.20b.

How Healthy Is 4by4's Balance Sheet?

According to the last reported balance sheet, 4by4 had liabilities of ₩15.7b due within 12 months, and liabilities of ₩13.5b due beyond 12 months. Offsetting these obligations, it had cash of ₩13.4b as well as receivables valued at ₩2.28b due within 12 months. So its liabilities total ₩13.5b more than the combination of its cash and short-term receivables.

Of course, 4by4 has a market capitalization of ₩70.1b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is 4by4'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.

In the last year 4by4 wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to ₩34b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, 4by4 had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩17b. 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. Another cause for caution is that is bled ₩20b in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example 4by4 has 3 warning signs (and 1 which is significant) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.