Health Check: How Prudently Does MOA Life Plus (KOSDAQ:142760) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, MOA Life Plus Co. Ltd. (KOSDAQ:142760) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for MOA Life Plus

What Is MOA Life Plus's Net Debt?

You can click the graphic below for the historical numbers, but it shows that MOA Life Plus had ₩10.7b of debt in September 2024, down from ₩44.1b, one year before. But on the other hand it also has ₩41.0b in cash, leading to a ₩30.4b net cash position.

How Healthy Is MOA Life Plus' Balance Sheet?

The latest balance sheet data shows that MOA Life Plus had liabilities of ₩18.9b due within a year, and liabilities of ₩470.8m falling due after that. Offsetting this, it had ₩41.0b in cash and ₩12.2b in receivables that were due within 12 months. So it can boast ₩33.9b more liquid assets than total liabilities.

This surplus liquidity suggests that MOA Life Plus' 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. Simply put, the fact that MOA Life Plus 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 you can't view debt in total isolation; since MOA Life Plus will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

While it hasn't made a profit, at least MOA Life Plus booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is MOA Life Plus?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months MOA Life Plus lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩2.5b and booked a ₩11b accounting loss. But the saving grace is the ₩30.4b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - MOA Life Plus has 2 warning signs we think you should be aware of.

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.