Is Naturalendo Tech (KOSDAQ:168330) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Naturalendo Tech Co., Ltd. (KOSDAQ:168330) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Naturalendo Tech

What Is Naturalendo Tech's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Naturalendo Tech had debt of ₩2.26b, up from none in one year. But on the other hand it also has ₩3.44b in cash, leading to a ₩1.18b net cash position.

A Look At Naturalendo Tech's Liabilities

According to the last reported balance sheet, Naturalendo Tech had liabilities of ₩4.25b due within 12 months, and liabilities of ₩2.01b due beyond 12 months. Offsetting these obligations, it had cash of ₩3.44b as well as receivables valued at ₩2.14b due within 12 months. So it has liabilities totalling ₩678.6m more than its cash and near-term receivables, combined.

Having regard to Naturalendo Tech's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩77.0b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Naturalendo Tech also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Naturalendo Tech'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 Naturalendo Tech wasn't profitable at an EBIT level, but managed to grow its revenue by 35%, to ₩19b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Naturalendo Tech?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Naturalendo Tech 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 ₩5.9b and booked a ₩4.4b accounting loss. With only ₩1.18b on the balance sheet, it would appear that its going to need to raise capital again soon. Naturalendo Tech's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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. For example, we've discovered 2 warning signs for Naturalendo Tech (1 is a bit concerning!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.