NIBEC (KOSDAQ:138610) Has Debt But No Earnings; Should You Worry?

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.' 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. We can see that NIBEC Co., Ltd. (KOSDAQ:138610) does use debt in its business. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for NIBEC

How Much Debt Does NIBEC Carry?

As you can see below, at the end of December 2020, NIBEC had ₩13.6b of debt, up from ₩2.83b a year ago. Click the image for more detail. However, it does have ₩27.4b in cash offsetting this, leading to net cash of ₩13.8b.

How Strong Is NIBEC's Balance Sheet?

According to the last reported balance sheet, NIBEC had liabilities of ₩5.83b due within 12 months, and liabilities of ₩15.4b due beyond 12 months. On the other hand, it had cash of ₩27.4b and ₩1.93b worth of receivables due within a year. So it can boast ₩8.14b more liquid assets than total liabilities.

This short term liquidity is a sign that NIBEC could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, NIBEC 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 NIBEC'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 NIBEC had a loss before interest and tax, and actually shrunk its revenue by 32%, to ₩6.4b. To be frank that doesn't bode well.

So How Risky Is NIBEC?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year NIBEC had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩4.9b of cash and made a loss of ₩3.6b. However, it has net cash of ₩13.8b, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example, we've discovered 1 warning sign for NIBEC that you should be aware of before investing here.

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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