S&S Tech (KOSDAQ:101490) Has A Pretty Healthy Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies S&S Tech Corporation (KOSDAQ:101490) makes use of debt. 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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for S&S Tech

What Is S&S Tech's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 S&S Tech had ₩14.0b of debt, an increase on ₩10.4b, over one year. But on the other hand it also has ₩86.0b in cash, leading to a ₩71.9b net cash position.

A Look At S&S Tech's Liabilities

The latest balance sheet data shows that S&S Tech had liabilities of ₩39.4b due within a year, and liabilities of ₩9.18b falling due after that. Offsetting this, it had ₩86.0b in cash and ₩36.5b in receivables that were due within 12 months. So it actually has ₩73.9b more liquid assets than total liabilities.

This short term liquidity is a sign that S&S Tech could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, S&S Tech boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that S&S Tech has boosted its EBIT by 41%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since S&S Tech 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. S&S Tech 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. In the last three years, S&S Tech created free cash flow amounting to 9.6% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case S&S Tech has ₩71.9b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 41% over the last year. So is S&S Tech'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 S&S Tech, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.