Is Genesystem (KOSDAQ:363250) Using Debt Sensibly?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Genesystem Co., Ltd. (KOSDAQ:363250) does use debt in its business. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Genesystem's Net Debt?

The image below, which you can click on for greater detail, shows that Genesystem had debt of ₩4.02b at the end of March 2025, a reduction from ₩4.30b over a year. However, its balance sheet shows it holds ₩5.52b in cash, so it actually has ₩1.50b net cash.

How Strong Is Genesystem's Balance Sheet?

The latest balance sheet data shows that Genesystem had liabilities of ₩2.55b due within a year, and liabilities of ₩5.56b falling due after that. Offsetting these obligations, it had cash of ₩5.52b as well as receivables valued at ₩131.5m due within 12 months. So it has liabilities totalling ₩2.46b more than its cash and near-term receivables, combined.

Given Genesystem has a market capitalization of ₩56.1b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Genesystem 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 Genesystem 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.

Check out our latest analysis for Genesystem

Over 12 months, Genesystem reported revenue of ₩1.1b, which is a gain of 103%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Genesystem?

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 Genesystem lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩7.6b of cash and made a loss of ₩8.5b. Given it only has net cash of ₩1.50b, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Genesystem 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. Be aware that Genesystem is showing 3 warning signs in our investment analysis , and 2 of those don't sit too well with us...

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.

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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.