Is EMnI (KOSDAQ:083470) Using Too Much Debt?

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.' 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. We can see that EMnI Co., Ltd. (KOSDAQ:083470) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for EMnI

What Is EMnI's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 EMnI had ₩2.68b of debt, an increase on none, over one year. But on the other hand it also has ₩9.13b in cash, leading to a ₩6.46b net cash position.

How Strong Is EMnI's Balance Sheet?

The latest balance sheet data shows that EMnI had liabilities of ₩8.40b due within a year, and liabilities of ₩686.8m falling due after that. On the other hand, it had cash of ₩9.13b and ₩4.63b worth of receivables due within a year. So it actually has ₩4.68b more liquid assets than total liabilities.

It's good to see that EMnI has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that EMnI has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since EMnI 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.

Over 12 months, EMnI reported revenue of ₩31b, which is a gain of 23%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is EMnI?

Although EMnI had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩7.8m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 23% is a good sign. We'd see further strong growth as an optimistic indication. 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. To that end, you should be aware of the 2 warning signs we've spotted with EMnI .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.