Is TechnologyLtd (KOSDAQ:043090) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies The Technology Co.,Ltd. (KOSDAQ:043090) makes use of debt. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for TechnologyLtd

What Is TechnologyLtd's Net Debt?

The image below, which you can click on for greater detail, shows that TechnologyLtd had debt of ₩9.46b at the end of June 2024, a reduction from ₩9.89b over a year. However, its balance sheet shows it holds ₩9.99b in cash, so it actually has ₩529.2m net cash.

How Strong Is TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that TechnologyLtd had liabilities of ₩18.7b falling due within a year, and liabilities of ₩1.87b due beyond that. Offsetting these obligations, it had cash of ₩9.99b as well as receivables valued at ₩26.3b due within 12 months. So it can boast ₩15.7b more liquid assets than total liabilities.

This luscious liquidity implies that TechnologyLtd's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is TechnologyLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year TechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 134%, to ₩16b. So there's no doubt that shareholders are cheering for growth

So How Risky Is TechnologyLtd?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year TechnologyLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩3.5b of cash and made a loss of ₩17b. But the saving grace is the ₩529.2m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that TechnologyLtd has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. We've identified 4 warning signs with TechnologyLtd (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

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.