Does BINEX (KOSDAQ:053030) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies BINEX Co., Ltd. (KOSDAQ:053030) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 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. 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.

See our latest analysis for BINEX

How Much Debt Does BINEX Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 BINEX had ₩56.5b of debt, an increase on ₩23.2b, over one year. However, it does have ₩66.7b in cash offsetting this, leading to net cash of ₩10.2b.

A Look At BINEX's Liabilities

The latest balance sheet data shows that BINEX had liabilities of ₩27.0b due within a year, and liabilities of ₩69.1b falling due after that. On the other hand, it had cash of ₩66.7b and ₩24.8b worth of receivables due within a year. So it has liabilities totalling ₩4.53b more than its cash and near-term receivables, combined.

Having regard to BINEX's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩602.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, BINEX boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, BINEX grew its EBIT by 43% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is BINEX's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While BINEX has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, BINEX produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing up

We could understand if investors are concerned about BINEX's liabilities, but we can be reassured by the fact it has has net cash of ₩10.2b. And it impressed us with its EBIT growth of 43% over the last year. So we don't think BINEX's use of debt is risky. 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 1 warning sign with BINEX , and understanding them should be part of your investment process.

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. 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.
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