Stock Analysis

Is Interpark (KOSDAQ:035080) Weighed On By Its Debt Load?

KOSDAQ:A035080
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Interpark Co., Ltd. (KOSDAQ:035080) does carry debt. But the more important question is: how much risk is that debt creating?

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

Check out our latest analysis for Interpark

What Is Interpark's Net Debt?

The image below, which you can click on for greater detail, shows that Interpark had debt of ₩46.8b at the end of December 2020, a reduction from ₩65.6b over a year. But on the other hand it also has ₩288.1b in cash, leading to a ₩241.2b net cash position.

debt-equity-history-analysis
KOSDAQ:A035080 Debt to Equity History April 9th 2021

How Strong Is Interpark's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Interpark had liabilities of ₩866.1b due within 12 months and liabilities of ₩127.0b due beyond that. Offsetting these obligations, it had cash of ₩288.1b as well as receivables valued at ₩576.6b due within 12 months. So its liabilities total ₩128.4b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Interpark has a market capitalization of ₩322.7b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Interpark 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 Interpark will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Interpark made a loss at the EBIT level, and saw its revenue drop to ₩3.2t, which is a fall of 7.1%. We would much prefer see growth.

So How Risky Is Interpark?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Interpark had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩98b and booked a ₩32b accounting loss. With only ₩241.2b on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Interpark (1 shouldn't be ignored!) 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. 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.
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