Does YES24Ltd (KOSDAQ:053280) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies YES24 Co.,Ltd (KOSDAQ:053280) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for YES24Ltd

What Is YES24Ltd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 YES24Ltd had ₩35.0b of debt, an increase on ₩18.8b, over one year. However, it also had ₩17.0b in cash, and so its net debt is ₩18.0b.

How Healthy Is YES24Ltd's Balance Sheet?

The latest balance sheet data shows that YES24Ltd had liabilities of ₩143.5b due within a year, and liabilities of ₩23.9b falling due after that. Offsetting this, it had ₩17.0b in cash and ₩30.3b in receivables that were due within 12 months. So it has liabilities totalling ₩120.1b more than its cash and near-term receivables, combined.

This deficit isn't so bad because YES24Ltd is worth ₩246.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since YES24Ltd 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 YES24Ltd wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to ₩586b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, YES24Ltd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩4.6b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₩9.2b. So to be blunt we do think it is risky. 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. To that end, you should learn about the 4 warning signs we've spotted with YES24Ltd (including 1 which is a bit concerning) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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