These 4 Measures Indicate That I&C Technology (KOSDAQ:052860) Is Using Debt Extensively

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 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. As with many other companies I&C Technology Co., Ltd. (KOSDAQ:052860) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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

What Is I&C Technology's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 I&C Technology had ₩15.5b of debt, an increase on ₩14.0b, over one year. However, its balance sheet shows it holds ₩17.5b in cash, so it actually has ₩1.97b net cash.

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

We can see from the most recent balance sheet that I&C Technology had liabilities of ₩21.3b falling due within a year, and liabilities of ₩1.43b due beyond that. On the other hand, it had cash of ₩17.5b and ₩2.59b worth of receivables due within a year. So it has liabilities totalling ₩2.69b more than its cash and near-term receivables, combined.

Given I&C Technology has a market capitalization of ₩47.5b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, I&C Technology also has more cash than debt, so we're pretty confident it can manage its debt safely.

Shareholders should be aware that I&C Technology's EBIT was down 41% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since I&C Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While I&C Technology has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last two years, I&C Technology's free cash flow amounted to 35% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about I&C Technology's liabilities, but we can be reassured by the fact it has has net cash of ₩1.97b. So while I&C Technology does not have a great balance sheet, it's certainly not too bad. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that I&C Technology is showing 2 warning signs in our investment analysis , and 1 of those is significant...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.