Does FutureChemLtd (KOSDAQ:220100) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that FutureChem Co.,Ltd (KOSDAQ:220100) does use debt in its business. But is this debt a concern to shareholders?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for FutureChemLtd

What Is FutureChemLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 FutureChemLtd had ₩10.5b of debt, an increase on none, over one year. But it also has ₩35.4b in cash to offset that, meaning it has ₩25.0b net cash.

A Look At FutureChemLtd's Liabilities

The latest balance sheet data shows that FutureChemLtd had liabilities of ₩3.34b due within a year, and liabilities of ₩19.4b falling due after that. On the other hand, it had cash of ₩35.4b and ₩3.30b worth of receivables due within a year. So it can boast ₩16.0b more liquid assets than total liabilities.

This short term liquidity is a sign that FutureChemLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, FutureChemLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since FutureChemLtd 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.

In the last year FutureChemLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to ₩16b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is FutureChemLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that FutureChemLtd 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 ₩4.0b and booked a ₩11b accounting loss. But the saving grace is the ₩25.0b 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, we've discovered 1 warning sign for FutureChemLtd that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.