Does TOEBOX KOREA.Ltd (KOSDAQ:215480) 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.' 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. As with many other companies TOEBOX KOREA.Ltd. (KOSDAQ:215480) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for TOEBOX KOREA.Ltd

What Is TOEBOX KOREA.Ltd's Net Debt?

As you can see below, TOEBOX KOREA.Ltd had ₩3.11b of debt at December 2020, down from ₩7.11b a year prior. However, it does have ₩15.7b in cash offsetting this, leading to net cash of ₩12.6b.

A Look At TOEBOX KOREA.Ltd's Liabilities

According to the last reported balance sheet, TOEBOX KOREA.Ltd had liabilities of ₩5.07b due within 12 months, and liabilities of ₩236.7m due beyond 12 months. On the other hand, it had cash of ₩15.7b and ₩1.85b worth of receivables due within a year. So it actually has ₩12.2b more liquid assets than total liabilities.

This excess liquidity suggests that TOEBOX KOREA.Ltd is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, TOEBOX KOREA.Ltd 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 TOEBOX KOREA.Ltd'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 TOEBOX KOREA.Ltd had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₩25b. We would much prefer see growth.

So How Risky Is TOEBOX KOREA.Ltd?

While TOEBOX KOREA.Ltd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩3.5b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for TOEBOX KOREA.Ltd (of which 1 can't be ignored!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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