Does ICD (KOSDAQ:040910) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. We can see that ICD Co., Ltd. (KOSDAQ:040910) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for ICD

How Much Debt Does ICD Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 ICD had ₩33.3b of debt, an increase on ₩19.3b, over one year. On the flip side, it has ₩32.9b in cash leading to net debt of about ₩373.9m.

A Look At ICD's Liabilities

Zooming in on the latest balance sheet data, we can see that ICD had liabilities of ₩92.5b due within 12 months and liabilities of ₩13.5b due beyond that. Offsetting these obligations, it had cash of ₩32.9b as well as receivables valued at ₩21.6b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩51.5b.

This deficit is considerable relative to its market capitalization of ₩82.7b, so it does suggest shareholders should keep an eye on ICD's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Carrying virtually no net debt, ICD has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ICD will need earnings to service that debt. 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.

In the last year ICD had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₩98b. We would much prefer see growth.

Caveat Emptor

While ICD's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₩35b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩19b of cash over the last year. So in short it's a really risky stock. 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 ICD has 3 warning signs (and 1 which is a bit concerning) 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.