Does iWIN PLUSLTD (KOSDAQ:123010) Have A 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that iWIN PLUS CO.,LTD. (KOSDAQ:123010) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for iWIN PLUSLTD

What Is iWIN PLUSLTD's Debt?

The image below, which you can click on for greater detail, shows that iWIN PLUSLTD had debt of ₩17.1b at the end of June 2024, a reduction from ₩20.1b over a year. However, it also had ₩2.87b in cash, and so its net debt is ₩14.2b.

How Healthy Is iWIN PLUSLTD's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that iWIN PLUSLTD had liabilities of ₩25.6b due within 12 months and liabilities of ₩1.93b due beyond that. Offsetting these obligations, it had cash of ₩2.87b as well as receivables valued at ₩11.7b due within 12 months. So its liabilities total ₩13.0b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₩21.1b, so it does suggest shareholders should keep an eye on iWIN PLUSLTD's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since iWIN PLUSLTD will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, iWIN PLUSLTD reported revenue of ₩35b, which is a gain of 77%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate iWIN PLUSLTD's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable ₩7.7b 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩5.6b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for iWIN PLUSLTD (1 is significant!) that you should be aware of before investing here.

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.