Does Vissem Electronics (KOSDAQ:072950) Have A Healthy Balance Sheet?

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 Vissem Electronics Co., Ltd. (KOSDAQ:072950) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. 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 Vissem Electronics

How Much Debt Does Vissem Electronics Carry?

The image below, which you can click on for greater detail, shows that Vissem Electronics had debt of ₩6.00b at the end of September 2024, a reduction from ₩6.40b over a year. However, its balance sheet shows it holds ₩15.1b in cash, so it actually has ₩9.10b net cash.

A Look At Vissem Electronics' Liabilities

Zooming in on the latest balance sheet data, we can see that Vissem Electronics had liabilities of ₩21.0b due within 12 months and liabilities of ₩4.31b due beyond that. Offsetting this, it had ₩15.1b in cash and ₩11.6b in receivables that were due within 12 months. So it actually has ₩1.32b more liquid assets than total liabilities.

This short term liquidity is a sign that Vissem Electronics could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Vissem Electronics has more cash than debt is arguably a good indication that it can manage its debt safely.

On the other hand, Vissem Electronics saw its EBIT drop by 7.0% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Vissem Electronics 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Vissem Electronics 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. Over the last three years, Vissem Electronics recorded free cash flow worth a fulsome 89% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Vissem Electronics has net cash of ₩9.10b, as well as more liquid assets than liabilities. The cherry on top was that in converted 89% of that EBIT to free cash flow, bringing in ₩760m. So is Vissem Electronics's debt a risk? It doesn't seem so to us. 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 2 warning signs for Vissem Electronics you should be aware of.

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.