Finetechnix.Ltd (KOSDAQ:106240) Is Carrying A Fair Bit Of Debt

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. We can see that Finetechnix. Co.,Ltd. (KOSDAQ:106240) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Finetechnix.Ltd

How Much Debt Does Finetechnix.Ltd Carry?

The image below, which you can click on for greater detail, shows that Finetechnix.Ltd had debt of ₩32.8b at the end of September 2020, a reduction from ₩41.6b over a year. On the flip side, it has ₩6.90b in cash leading to net debt of about ₩25.9b.

How Strong Is Finetechnix.Ltd's Balance Sheet?

The latest balance sheet data shows that Finetechnix.Ltd had liabilities of ₩63.2b due within a year, and liabilities of ₩7.99b falling due after that. Offsetting this, it had ₩6.90b in cash and ₩38.2b in receivables that were due within 12 months. So it has liabilities totalling ₩26.1b more than its cash and near-term receivables, combined.

Of course, Finetechnix.Ltd has a market capitalization of ₩191.2b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Finetechnix.Ltd'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.

Over 12 months, Finetechnix.Ltd reported revenue of ₩173b, which is a gain of 39%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Finetechnix.Ltd's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₩2.5b 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. We would feel better if it turned its trailing twelve month loss of ₩4.5b into a profit. So we do think this stock is quite 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Finetechnix.Ltd you should know about.

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. 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.
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