Is KidariStudio (KRX:020120) Using Debt In A Risky Way?

Warren Buffett famously said, '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 KidariStudio, Inc. (KRX:020120) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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, 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.

What Is KidariStudio's Debt?

As you can see below, KidariStudio had ₩17.7b of debt at March 2025, down from ₩24.7b a year prior. However, its balance sheet shows it holds ₩59.3b in cash, so it actually has ₩41.6b net cash.

How Strong Is KidariStudio's Balance Sheet?

The latest balance sheet data shows that KidariStudio had liabilities of ₩110.3b due within a year, and liabilities of ₩23.0b falling due after that. Offsetting this, it had ₩59.3b in cash and ₩20.6b in receivables that were due within 12 months. So its liabilities total ₩53.5b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since KidariStudio has a market capitalization of ₩141.2b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, KidariStudio also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 KidariStudio 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.

See our latest analysis for KidariStudio

Over 12 months, KidariStudio reported revenue of ₩204b, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is KidariStudio?

Although KidariStudio had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩9.7b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 instance, we've identified 2 warning signs for KidariStudio (1 is concerning) 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.