Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, DE&T Co., Ltd. (KOSDAQ:079810) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for DE&T
How Much Debt Does DE&T Carry?
As you can see below, DE&T had ₩20.3b of debt at September 2020, down from ₩31.2b a year prior. On the flip side, it has ₩13.8b in cash leading to net debt of about ₩6.52b.
A Look At DE&T's Liabilities
The latest balance sheet data shows that DE&T had liabilities of ₩19.5b due within a year, and liabilities of ₩7.93b falling due after that. Offsetting these obligations, it had cash of ₩13.8b as well as receivables valued at ₩9.27b due within 12 months. So it has liabilities totalling ₩4.41b more than its cash and near-term receivables, combined.
Since publicly traded DE&T shares are worth a total of ₩119.2b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is DE&T's earnings that will influence how the balance sheet holds up in the future. 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.
In the last year DE&T had a loss before interest and tax, and actually shrunk its revenue by 19%, to ₩27b. We would much prefer see growth.
Caveat Emptor
While DE&T's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩6.7b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩5.9b of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - DE&T has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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This article by Simply Wall St is general in nature. 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.
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About KOSDAQ:A079810
DE&T
Develops, produces, and sells back-end process equipment of the semiconductor and flat panel display industries worldwide.
Excellent balance sheet with questionable track record.
