Is AUTO& (KOSDAQ:353590) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies AUTO& Inc. (KOSDAQ:353590) makes use of debt. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is AUTO&'s Debt?

The image below, which you can click on for greater detail, shows that AUTO& had debt of ₩16.3b at the end of December 2024, a reduction from ₩17.5b over a year. But it also has ₩23.0b in cash to offset that, meaning it has ₩6.76b net cash.

How Strong Is AUTO&'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AUTO& had liabilities of ₩28.7b due within 12 months and liabilities of ₩4.34b due beyond that. Offsetting this, it had ₩23.0b in cash and ₩8.15b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩1.85b.

Given AUTO& has a market capitalization of ₩44.6b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 it is AUTO&'s earnings that will influence how the balance sheet holds up in the future. 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 .

See our latest analysis for AUTO&

Over 12 months, AUTO& made a loss at the EBIT level, and saw its revenue drop to ₩57b, which is a fall of 5.2%. We would much prefer see growth.

So How Risky Is AUTO&?

While AUTO& lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩2.6b. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. For example, we've discovered 2 warning signs for AUTO& (1 is concerning!) that you should be aware of before investing here.

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.