Is NIBEC (KOSDAQ:138610) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that NIBEC Co., Ltd. (KOSDAQ:138610) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is NIBEC's Debt?

You can click the graphic below for the historical numbers, but it shows that NIBEC had ₩15.6b of debt in December 2024, down from ₩21.4b, one year before. But on the other hand it also has ₩24.1b in cash, leading to a ₩8.48b net cash position.

How Strong Is NIBEC's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NIBEC had liabilities of ₩25.0b due within 12 months and liabilities of ₩5.20b due beyond that. On the other hand, it had cash of ₩24.1b and ₩8.11b worth of receivables due within a year. So it actually has ₩1.94b more liquid assets than total liabilities.

Having regard to NIBEC's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩186.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that NIBEC has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is NIBEC'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 .

Check out our latest analysis for NIBEC

In the last year NIBEC wasn't profitable at an EBIT level, but managed to grow its revenue by 56%, to ₩25b. With any luck the company will be able to grow its way to profitability.

So How Risky Is NIBEC?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year NIBEC had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩3.8b and booked a ₩9.3b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩8.48b. That means it could keep spending at its current rate for more than two years. NIBEC's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for NIBEC you should be aware of.

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.