Is Eutilex.Co.Ltd (KOSDAQ:263050) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Eutilex.Co.,Ltd (KOSDAQ:263050) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Eutilex.Co.Ltd

What Is Eutilex.Co.Ltd's Debt?

You can click the graphic below for the historical numbers, but it shows that Eutilex.Co.Ltd had ₩5.00b of debt in December 2023, down from ₩8.07b, one year before. However, its balance sheet shows it holds ₩38.2b in cash, so it actually has ₩33.2b net cash.

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

The latest balance sheet data shows that Eutilex.Co.Ltd had liabilities of ₩7.89b due within a year, and liabilities of ₩1.62b falling due after that. Offsetting these obligations, it had cash of ₩38.2b as well as receivables valued at ₩452.2m due within 12 months. So it can boast ₩29.2b more liquid assets than total liabilities.

This surplus liquidity suggests that Eutilex.Co.Ltd's 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. Succinctly put, Eutilex.Co.Ltd 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 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 had a loss before interest and tax, and actually shrunk its revenue by 39%, to ₩132m. That makes us nervous, to say the least.

So How Risky Is Eutilex.Co.Ltd?

Statistically speaking companies that lose money are riskier than those that make money. 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 ₩26b of cash and made a loss of ₩28b. However, it has net cash of ₩33.2b, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should learn about the 3 warning signs we've spotted with Eutilex.Co.Ltd (including 2 which are concerning) .

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.

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.