Is I&C Technology (KOSDAQ:052860) Weighed On By Its Debt Load?

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.' 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 can see that I&C Technology Co., Ltd. (KOSDAQ:052860) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for I&C Technology

How Much Debt Does I&C Technology Carry?

You can click the graphic below for the historical numbers, but it shows that I&C Technology had ₩10.8b of debt in September 2020, down from ₩12.4b, one year before. But on the other hand it also has ₩17.3b in cash, leading to a ₩6.48b net cash position.

How Strong Is I&C Technology's Balance Sheet?

According to the last reported balance sheet, I&C Technology had liabilities of ₩14.2b due within 12 months, and liabilities of ₩1.86b due beyond 12 months. Offsetting this, it had ₩17.3b in cash and ₩1.82b in receivables that were due within 12 months. So it actually has ₩3.06b more liquid assets than total liabilities.

This surplus suggests that I&C Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that I&C Technology has more cash than debt is arguably a good indication that it can manage its debt safely. 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 I&C Technology 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.

Over 12 months, I&C Technology made a loss at the EBIT level, and saw its revenue drop to ₩22b, which is a fall of 52%. That makes us nervous, to say the least.

So How Risky Is I&C Technology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year I&C Technology had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩4.5b of cash and made a loss of ₩5.1b. With only ₩6.48b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that I&C Technology is showing 2 warning signs in our investment analysis , 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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