Despite Lacking Profits Eutilex.Co.Ltd (KOSDAQ:263050) Seems To Be On Top Of Its Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Eutilex.Co.,Ltd (KOSDAQ:263050) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Eutilex.Co.Ltd

How Much Debt Does Eutilex.Co.Ltd Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Eutilex.Co.Ltd had debt of ₩9.50b, up from ₩7.31b in one year. However, it does have ₩27.6b in cash offsetting this, leading to net cash of ₩18.1b.

How Healthy Is Eutilex.Co.Ltd's Balance Sheet?

According to the last reported balance sheet, Eutilex.Co.Ltd had liabilities of ₩11.1b due within 12 months, and liabilities of ₩4.15b due beyond 12 months. Offsetting this, it had ₩27.6b in cash and ₩90.5m in receivables that were due within 12 months. So it can boast ₩12.4b more liquid assets than total liabilities.

This short term liquidity is a sign that Eutilex.Co.Ltd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Eutilex.Co.Ltd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Eutilex.Co.Ltd 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.

Over 12 months, Eutilex.Co.Ltd reported revenue of ₩410m, which is a gain of 78%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Eutilex.Co.Ltd?

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 Eutilex.Co.Ltd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩24b of cash and made a loss of ₩27b. But at least it has ₩18.1b on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Eutilex.Co.Ltd may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Eutilex.Co.Ltd is showing 5 warning signs in our investment analysis , and 4 of those are concerning...

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.

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