Is TechnologyLtd (KOSDAQ:043090) Using Too Much Debt?

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. As with many other companies The Technology Co.,Ltd. (KOSDAQ:043090) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for TechnologyLtd

What Is TechnologyLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that TechnologyLtd had ₩4.41b of debt in September 2024, down from ₩9.87b, one year before. However, it does have ₩4.52b in cash offsetting this, leading to net cash of ₩105.8m.

How Healthy Is TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that TechnologyLtd had liabilities of ₩12.5b falling due within a year, and liabilities of ₩1.10b due beyond that. Offsetting these obligations, it had cash of ₩4.52b as well as receivables valued at ₩24.5b due within 12 months. So it actually has ₩15.4b more liquid assets than total liabilities.

This surplus liquidity suggests that TechnologyLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

Over 12 months, TechnologyLtd reported revenue of ₩14b, which is a gain of 22%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is TechnologyLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that TechnologyLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩5.2b and booked a ₩19b accounting loss. With only ₩105.8m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, TechnologyLtd may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for TechnologyLtd (of which 2 are a bit unpleasant!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.