TOEBOX KOREA.Ltd (KOSDAQ:215480) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that TOEBOX KOREA.Ltd. (KOSDAQ:215480) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for TOEBOX KOREA.Ltd

What Is TOEBOX KOREA.Ltd's Net Debt?

As you can see below, TOEBOX KOREA.Ltd had ₩6.80b of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₩15.0b in cash offsetting this, leading to net cash of ₩8.21b.

How Healthy Is TOEBOX KOREA.Ltd's Balance Sheet?

According to the last reported balance sheet, TOEBOX KOREA.Ltd had liabilities of ₩9.37b due within 12 months, and liabilities of ₩295.1m due beyond 12 months. Offsetting this, it had ₩15.0b in cash and ₩2.82b in receivables that were due within 12 months. So it can boast ₩8.16b more liquid assets than total liabilities.

This excess liquidity suggests that TOEBOX KOREA.Ltd is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble 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! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TOEBOX KOREA.Ltd 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.

In the last year TOEBOX KOREA.Ltd's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is TOEBOX KOREA.Ltd?

Although TOEBOX KOREA.Ltd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩2.7b. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with TOEBOX KOREA.Ltd (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

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.

If you’re looking to trade TOEBOX KOREA.Ltd, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.