Is ContentreeJoongAng (KRX:036420) Weighed On By Its Debt Load?

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 ContentreeJoongAng corp. (KRX:036420) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, 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.

View our latest analysis for ContentreeJoongAng

How Much Debt Does ContentreeJoongAng Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 ContentreeJoongAng had ₩1.28t of debt, an increase on ₩1.05t, over one year. However, because it has a cash reserve of ₩441.7b, its net debt is less, at about ₩834.1b.

How Strong Is ContentreeJoongAng's Balance Sheet?

According to the last reported balance sheet, ContentreeJoongAng had liabilities of ₩1.45t due within 12 months, and liabilities of ₩902.5b due beyond 12 months. Offsetting these obligations, it had cash of ₩441.7b as well as receivables valued at ₩199.2b due within 12 months. So it has liabilities totalling ₩1.72t more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₩178.2b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, ContentreeJoongAng would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ContentreeJoongAng's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year ContentreeJoongAng wasn't profitable at an EBIT level, but managed to grow its revenue by 6.2%, to ₩974b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months ContentreeJoongAng produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩69b. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the fact is that it incinerated ₩59b of cash in the last twelve months, and has precious few liquid assets in comparison to its liabilities. So we consider this a high risk stock, and we're worried its share price could sink faster than than a dingy with a great white shark attacking it. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for ContentreeJoongAng that you should be aware of before investing here.

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.