Is Seoul Viosys (KOSDAQ:092190) Using Debt Sensibly?

Warren Buffett famously said, '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 Seoul Viosys Co., Ltd (KOSDAQ:092190) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Seoul Viosys

What Is Seoul Viosys's Net Debt?

The image below, which you can click on for greater detail, shows that Seoul Viosys had debt of ₩326.9b at the end of September 2024, a reduction from ₩366.9b over a year. However, because it has a cash reserve of ₩27.9b, its net debt is less, at about ₩299.0b.

How Strong Is Seoul Viosys' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Seoul Viosys had liabilities of ₩502.6b due within 12 months and liabilities of ₩144.1b due beyond that. On the other hand, it had cash of ₩27.9b and ₩128.1b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩490.7b.

The deficiency here weighs heavily on the ₩169.8b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Seoul Viosys would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Seoul Viosys's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Seoul Viosys wasn't profitable at an EBIT level, but managed to grow its revenue by 39%, to ₩665b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Seoul Viosys's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₩11b at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of ₩1.7b in the last year. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Seoul Viosys , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.