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ABOV Semiconductor (KOSDAQ:102120) Is Carrying A Fair Bit Of Debt
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.' 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 note that ABOV Semiconductor Co., Ltd. (KOSDAQ:102120) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for ABOV Semiconductor
What Is ABOV Semiconductor's Debt?
You can click the graphic below for the historical numbers, but it shows that ABOV Semiconductor had ₩110.2b of debt in September 2024, down from ₩135.5b, one year before. However, it also had ₩70.6b in cash, and so its net debt is ₩39.6b.
How Strong Is ABOV Semiconductor's Balance Sheet?
The latest balance sheet data shows that ABOV Semiconductor had liabilities of ₩115.3b due within a year, and liabilities of ₩32.3b falling due after that. Offsetting this, it had ₩70.6b in cash and ₩24.6b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩52.3b.
This deficit isn't so bad because ABOV Semiconductor is worth ₩141.2b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ABOV Semiconductor 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, ABOV Semiconductor made a loss at the EBIT level, and saw its revenue drop to ₩240b, which is a fall of 4.0%. That's not what we would hope to see.
Caveat Emptor
Importantly, ABOV Semiconductor had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩6.0b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₩23b. In the meantime, we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for ABOV Semiconductor (1 doesn't sit too well with us!) that you should be aware of before investing here.
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.
About KOSDAQ:A102120
ABOV Semiconductor
Designs, manufactures, and sells microcontrollers, and memory and semiconductor solutions in South Korea and internationally.