Is UniTest Incorporation (KOSDAQ:086390) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, UniTest Incorporation (KOSDAQ:086390) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is UniTest Incorporation's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 UniTest Incorporation had ₩31.0b of debt, an increase on ₩15.9b, over one year. But it also has ₩35.8b in cash to offset that, meaning it has ₩4.83b net cash.

A Look At UniTest Incorporation's Liabilities

Zooming in on the latest balance sheet data, we can see that UniTest Incorporation had liabilities of ₩44.3b due within 12 months and liabilities of ₩22.6b due beyond that. Offsetting these obligations, it had cash of ₩35.8b as well as receivables valued at ₩47.5b due within 12 months. So it actually has ₩16.5b more liquid assets than total liabilities.

This surplus suggests that UniTest Incorporation has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, UniTest Incorporation boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since UniTest Incorporation will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for UniTest Incorporation

In the last year UniTest Incorporation had a loss before interest and tax, and actually shrunk its revenue by 45%, to ₩92b. To be frank that doesn't bode well.

So How Risky Is UniTest Incorporation?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that UniTest Incorporation had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩26b and booked a ₩26b accounting loss. However, it has net cash of ₩4.83b, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for UniTest Incorporation (of which 2 shouldn't be ignored!) you should know about.

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.