Anapass (KOSDAQ:123860) Has A Rock Solid 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. We note that Anapass, Inc. (KOSDAQ:123860) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Anapass

How Much Debt Does Anapass Carry?

You can click the graphic below for the historical numbers, but it shows that Anapass had ₩5.10b of debt in September 2024, down from ₩16.3b, one year before. But it also has ₩58.2b in cash to offset that, meaning it has ₩53.1b net cash.

How Strong Is Anapass' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Anapass had liabilities of ₩48.6b due within 12 months and liabilities of ₩171.9m due beyond that. Offsetting this, it had ₩58.2b in cash and ₩15.7b in receivables that were due within 12 months. So it can boast ₩25.1b more liquid assets than total liabilities.

This surplus suggests that Anapass has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Anapass boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Anapass grew its EBIT by 338% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Anapass's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Anapass 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. Over the last two years, Anapass recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Anapass has ₩53.1b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩25b, being 81% of its EBIT. So is Anapass's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Anapass's earnings per share history for free.

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.