Does Netmarble (KRX:251270) 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.' 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. We can see that Netmarble Corporation (KRX:251270) does use debt in its business. But the more important question is: how much risk is that debt creating?

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 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.

See our latest analysis for Netmarble

What Is Netmarble's Debt?

As you can see below, Netmarble had ₩1.76t of debt at December 2023, down from ₩2.17t a year prior. However, it does have ₩510.2b in cash offsetting this, leading to net debt of about ₩1.24t.

A Look At Netmarble's Liabilities

We can see from the most recent balance sheet that Netmarble had liabilities of ₩1.91t falling due within a year, and liabilities of ₩931.3b due beyond that. Offsetting this, it had ₩510.2b in cash and ₩273.8b in receivables that were due within 12 months. So it has liabilities totalling ₩2.05t more than its cash and near-term receivables, combined.

Netmarble has a market capitalization of ₩4.73t, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Netmarble can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Netmarble made a loss at the EBIT level, and saw its revenue drop to ₩2.5t, which is a fall of 6.4%. That's not what we would hope to see.

Caveat Emptor

Importantly, Netmarble had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩98b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩124b of cash over the last year. So suffice it to say we do consider the stock to be risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Netmarble's profit, revenue, and operating cashflow have changed over the last few years.

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.