Is NARA CELLAR (KOSDAQ:405920) 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.' 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 NARA CELLAR Co., Ltd. (KOSDAQ:405920) does use debt in its business. But is this debt a concern to shareholders?

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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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does NARA CELLAR Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 NARA CELLAR had ₩35.9b of debt, an increase on ₩33.3b, over one year. However, because it has a cash reserve of ₩5.23b, its net debt is less, at about ₩30.7b.

How Strong Is NARA CELLAR's Balance Sheet?

The latest balance sheet data shows that NARA CELLAR had liabilities of ₩51.2b due within a year, and liabilities of ₩13.8b falling due after that. Offsetting this, it had ₩5.23b in cash and ₩12.7b in receivables that were due within 12 months. So its liabilities total ₩47.1b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩28.0b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, NARA CELLAR would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is NARA CELLAR'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 .

View our latest analysis for NARA CELLAR

Over 12 months, NARA CELLAR made a loss at the EBIT level, and saw its revenue drop to ₩83b, which is a fall of 3.1%. We would much prefer see growth.

Caveat Emptor

Importantly, NARA CELLAR had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩4.0b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩388m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for NARA CELLAR (3 are a bit concerning) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.