Does Eutilex.Co.Ltd (KOSDAQ:263050) Have A Healthy Balance Sheet?

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 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 can see that Eutilex.Co.,Ltd (KOSDAQ:263050) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View 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 September 2024 Eutilex.Co.Ltd had debt of ₩8.00b, up from ₩5.51b in one year. But on the other hand it also has ₩16.1b in cash, leading to a ₩8.12b net cash position.

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

The latest balance sheet data shows that Eutilex.Co.Ltd had liabilities of ₩8.91b due within a year, and liabilities of ₩4.86b falling due after that. On the other hand, it had cash of ₩16.1b and ₩191.9m worth of receivables due within a year. So it actually has ₩2.54b 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. Succinctly put, Eutilex.Co.Ltd 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 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.

In the last year Eutilex.Co.Ltd wasn't profitable at an EBIT level, but managed to grow its revenue by 2,910%, to ₩6.9b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

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 in the last year Eutilex.Co.Ltd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩24b and booked a ₩25b accounting loss. Given it only has net cash of ₩8.12b, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Eutilex.Co.Ltd has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Eutilex.Co.Ltd (2 are a bit concerning!) 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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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.