Fine Semitech (KOSDAQ:036810) Is Carrying A Fair Bit Of Debt

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Fine Semitech Corp. (KOSDAQ:036810) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Fine Semitech

How Much Debt Does Fine Semitech Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Fine Semitech had ₩193.3b of debt, an increase on ₩123.7b, over one year. On the flip side, it has ₩19.3b in cash leading to net debt of about ₩174.0b.

A Look At Fine Semitech's Liabilities

We can see from the most recent balance sheet that Fine Semitech had liabilities of ₩131.5b falling due within a year, and liabilities of ₩106.7b due beyond that. Offsetting this, it had ₩19.3b in cash and ₩42.5b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩176.4b.

While this might seem like a lot, it is not so bad since Fine Semitech has a market capitalization of ₩369.2b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Fine Semitech's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Fine Semitech had a loss before interest and tax, and actually shrunk its revenue by 5.2%, to ₩204b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Fine Semitech produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩13b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩90b of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Fine Semitech has 2 warning signs we think you should be aware of.

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.