We Think INTEKPLUS (KOSDAQ:064290) Has A Fair Chunk Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, INTEKPLUS Co., Ltd. (KOSDAQ:064290) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. 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.

Check out our latest analysis for INTEKPLUS

What Is INTEKPLUS's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 INTEKPLUS had debt of ₩45.1b, up from ₩22.5b in one year. However, it does have ₩26.4b in cash offsetting this, leading to net debt of about ₩18.7b.

How Strong Is INTEKPLUS' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that INTEKPLUS had liabilities of ₩85.7b due within 12 months and liabilities of ₩305.1m due beyond that. Offsetting these obligations, it had cash of ₩26.4b as well as receivables valued at ₩19.1b due within 12 months. So its liabilities total ₩40.5b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because INTEKPLUS is worth ₩169.3b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if INTEKPLUS can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, INTEKPLUS reported revenue of ₩86b, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, INTEKPLUS had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩9.0b 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 ₩1.7b of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Case in point: We've spotted 1 warning sign for INTEKPLUS 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.