INVENIA (KOSDAQ:079950) Has Debt But No Earnings; Should You Worry?

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 note that INVENIA Co., Ltd. (KOSDAQ:079950) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for INVENIA

What Is INVENIA's Net Debt?

You can click the graphic below for the historical numbers, but it shows that INVENIA had ₩31.0b of debt in September 2024, down from ₩35.8b, one year before. However, it also had ₩3.14b in cash, and so its net debt is ₩27.8b.

How Healthy Is INVENIA's Balance Sheet?

According to the last reported balance sheet, INVENIA had liabilities of ₩46.1b due within 12 months, and liabilities of ₩6.47b due beyond 12 months. On the other hand, it had cash of ₩3.14b and ₩5.11b worth of receivables due within a year. So its liabilities total ₩44.3b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩15.3b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, INVENIA would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is INVENIA's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year INVENIA wasn't profitable at an EBIT level, but managed to grow its revenue by 211%, to ₩30b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

Even though INVENIA managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping ₩7.5b. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost ₩14b in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example INVENIA has 4 warning signs (and 2 which are concerning) we think you should know about.

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.