Avaco (KOSDAQ:083930) Has A Pretty Healthy Balance Sheet

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.' 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, Avaco Co., Ltd. (KOSDAQ:083930) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Avaco's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Avaco had ₩2.50b of debt in June 2025, down from ₩16.5b, one year before. However, its balance sheet shows it holds ₩30.0b in cash, so it actually has ₩27.5b net cash.

How Healthy Is Avaco's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Avaco had liabilities of ₩140.9b due within 12 months and liabilities of ₩5.84b due beyond that. On the other hand, it had cash of ₩30.0b and ₩105.9b worth of receivables due within a year. So its liabilities total ₩10.8b more than the combination of its cash and short-term receivables.

Since publicly traded Avaco shares are worth a total of ₩222.4b, 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. Despite its noteworthy liabilities, Avaco boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Avaco

Better yet, Avaco grew its EBIT by 107% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Avaco's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Avaco has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Avaco saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

We could understand if investors are concerned about Avaco's liabilities, but we can be reassured by the fact it has has net cash of ₩27.5b. And we liked the look of last year's 107% year-on-year EBIT growth. So we don't have any problem with Avaco's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Avaco you should be aware of.

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.