Is Alpha Holdings (KOSDAQ:117670) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Alpha Holdings, Inc. (KOSDAQ:117670) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Alpha Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Alpha Holdings had ₩2.44b of debt, an increase on ₩1.00b, over one year. But it also has ₩8.26b in cash to offset that, meaning it has ₩5.81b net cash.

A Look At Alpha Holdings' Liabilities

According to the last reported balance sheet, Alpha Holdings had liabilities of ₩16.2b due within 12 months, and liabilities of ₩3.20b due beyond 12 months. Offsetting these obligations, it had cash of ₩8.26b as well as receivables valued at ₩18.4b due within 12 months. So it actually has ₩7.22b more liquid assets than total liabilities.

This surplus suggests that Alpha Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Alpha Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Alpha Holdings'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.

View our latest analysis for Alpha Holdings

Over 12 months, Alpha Holdings reported revenue of ₩85b, which is a gain of 6.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Alpha Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Alpha Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩690m of cash and made a loss of ₩8.4b. But the saving grace is the ₩5.81b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Alpha Holdings has 4 warning signs (and 2 which can't be ignored) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.