Does Gradiant (KOSDAQ:035080) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Gradiant Corporation (KOSDAQ:035080) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Gradiant

What Is Gradiant's Net Debt?

As you can see below, Gradiant had ₩114.1b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₩338.5b in cash offsetting this, leading to net cash of ₩224.4b.

A Look At Gradiant's Liabilities

We can see from the most recent balance sheet that Gradiant had liabilities of ₩866.1b falling due within a year, and liabilities of ₩109.9b due beyond that. Offsetting these obligations, it had cash of ₩338.5b as well as receivables valued at ₩610.6b due within 12 months. So its liabilities total ₩27.0b more than the combination of its cash and short-term receivables.

Given Gradiant has a market capitalization of ₩173.9b, 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. While it does have liabilities worth noting, Gradiant also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Gradiant's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Gradiant had a loss before interest and tax, and actually shrunk its revenue by 3.8%, to ₩3.5t. We would much prefer see growth.

So How Risky Is Gradiant?

Although Gradiant had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩62b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Gradiant (1 shouldn't be ignored!) 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.