PonyLink (KOSDAQ:064800) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, PonyLink Co., Ltd. (KOSDAQ:064800) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for PonyLink

What Is PonyLink's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 PonyLink had debt of ₩29.2b, up from ₩26.3b in one year. But on the other hand it also has ₩101.3b in cash, leading to a ₩72.2b net cash position.

How Healthy Is PonyLink's Balance Sheet?

According to the last reported balance sheet, PonyLink had liabilities of ₩35.9b due within 12 months, and liabilities of ₩1.77b due beyond 12 months. Offsetting these obligations, it had cash of ₩101.3b as well as receivables valued at ₩11.9b due within 12 months. So it can boast ₩75.6b more liquid assets than total liabilities.

This surplus liquidity suggests that PonyLink's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, PonyLink 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 it is PonyLink'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 PonyLink had a loss before interest and tax, and actually shrunk its revenue by 4.8%, to ₩74b. We would much prefer see growth.

So How Risky Is PonyLink?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that PonyLink had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩14b and booked a ₩50b accounting loss. But the saving grace is the ₩72.2b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for PonyLink that you should be aware of.

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.