Global Standard Technology (KOSDAQ:083450) Could Easily Take On More Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Global Standard Technology, Limited (KOSDAQ:083450) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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, 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.

What Is Global Standard Technology's Debt?

As you can see below, at the end of December 2024, Global Standard Technology had ₩12.5b of debt, up from ₩8.28b a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩105.7b in cash, so it actually has ₩93.2b net cash.

How Healthy Is Global Standard Technology's Balance Sheet?

The latest balance sheet data shows that Global Standard Technology had liabilities of ₩60.1b due within a year, and liabilities of ₩6.41b falling due after that. Offsetting these obligations, it had cash of ₩105.7b as well as receivables valued at ₩56.2b due within 12 months. So it actually has ₩95.4b more liquid assets than total liabilities.

This excess liquidity suggests that Global Standard Technology is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Global Standard Technology has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Global Standard Technology

In addition to that, we're happy to report that Global Standard Technology has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Global Standard Technology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Global Standard Technology 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. Over the most recent three years, Global Standard Technology recorded free cash flow worth 54% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Global Standard Technology has ₩93.2b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 39% over the last year. So is Global Standard Technology's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Global Standard Technology, you may well want to click here to check an interactive graph of its earnings per share history.

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. 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.