Is TY Holdings (KRX:363280) A Risky Investment?

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 TY Holdings Co., Ltd (KRX:363280) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for TY Holdings

How Much Debt Does TY Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 TY Holdings had ₩602.7b of debt, an increase on ₩160.1b, over one year. However, it also had ₩277.1b in cash, and so its net debt is ₩325.6b.

How Healthy Is TY Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TY Holdings had liabilities of ₩644.4b due within 12 months and liabilities of ₩530.9b due beyond that. On the other hand, it had cash of ₩277.1b and ₩150.2b worth of receivables due within a year. So it has liabilities totalling ₩747.9b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₩118.8b 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. After all, TY Holdings would likely require a major re-capitalisation if it had to pay its creditors today. 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 TY Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year TY Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 2.1%, to ₩352b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months TY Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩8.4b at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But on the bright side the company actually produced a statutory profit of ₩48b and free cash flow of ₩69b. So its situation may not be as precarious as the EBIT would imply. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for TY Holdings that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.