Is AUTO& (KOSDAQ:353590) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies AUTO& Inc. (KOSDAQ:353590) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for AUTO&

How Much Debt Does AUTO& Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 AUTO& had ₩17.8b of debt, an increase on ₩11.4b, over one year. But it also has ₩25.0b in cash to offset that, meaning it has ₩7.28b net cash.

How Strong Is AUTO&'s Balance Sheet?

We can see from the most recent balance sheet that AUTO& had liabilities of ₩34.3b falling due within a year, and liabilities of ₩2.72b due beyond that. On the other hand, it had cash of ₩25.0b and ₩11.6b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that AUTO&'s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩63.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, AUTO& 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 AUTO& 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.

Over 12 months, AUTO& reported revenue of ₩62b, which is a gain of 17%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is AUTO&?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months AUTO& lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩61m of cash and made a loss of ₩809m. While this does make the company a bit risky, it's important to remember it has net cash of ₩7.28b. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example AUTO& has 2 warning signs (and 1 which is significant) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.