Is Nepes (KOSDAQ:033640) Weighed On By Its Debt Load?

Warren Buffett famously said, '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. As with many other companies Nepes Corporation (KOSDAQ:033640) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. 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.

View our latest analysis for Nepes

How Much Debt Does Nepes Carry?

You can click the graphic below for the historical numbers, but it shows that Nepes had ₩419.5b of debt in September 2024, down from ₩632.8b, one year before. On the flip side, it has ₩73.8b in cash leading to net debt of about ₩345.8b.

How Healthy Is Nepes' Balance Sheet?

According to the last reported balance sheet, Nepes had liabilities of ₩343.3b due within 12 months, and liabilities of ₩180.6b due beyond 12 months. Offsetting this, it had ₩73.8b in cash and ₩44.1b in receivables that were due within 12 months. So its liabilities total ₩406.0b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩177.8b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Nepes would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nepes'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.

Over 12 months, Nepes made a loss at the EBIT level, and saw its revenue drop to ₩478b, which is a fall of 4.8%. That's not what we would hope to see.

Caveat Emptor

Importantly, Nepes had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩39b. 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. For example, we would not want to see a repeat of last year's loss of ₩139b. In the meantime, 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 example Nepes has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.