These 4 Measures Indicate That ZeusLtd (KOSDAQ:079370) Is Using Debt Reasonably Well

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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, Zeus Co.,Ltd. (KOSDAQ:079370) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for ZeusLtd

What Is ZeusLtd's Debt?

As you can see below, at the end of September 2024, ZeusLtd had ₩116.6b of debt, up from ₩105.1b a year ago. Click the image for more detail. But on the other hand it also has ₩155.2b in cash, leading to a ₩38.5b net cash position.

How Healthy Is ZeusLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ZeusLtd had liabilities of ₩225.4b due within 12 months and liabilities of ₩64.5b due beyond that. On the other hand, it had cash of ₩155.2b and ₩39.9b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩94.8b.

Of course, ZeusLtd has a market capitalization of ₩487.6b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, ZeusLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that ZeusLtd has boosted its EBIT by 95%, thus reducing the spectre of future debt repayments. 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 ZeusLtd 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. ZeusLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, ZeusLtd actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While ZeusLtd does have more liabilities than liquid assets, it also has net cash of ₩38.5b. And it impressed us with its EBIT growth of 95% over the last year. So we are not troubled with ZeusLtd's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of ZeusLtd's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.