Would Semisysco (KOSDAQ:136510) Be Better Off With Less Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Semisysco Co., Ltd (KOSDAQ:136510) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Semisysco

What Is Semisysco's Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Semisysco had debt of ₩9.39b, up from ₩8.78b in one year. However, it also had ₩8.34b in cash, and so its net debt is ₩1.04b.

How Strong Is Semisysco's Balance Sheet?

We can see from the most recent balance sheet that Semisysco had liabilities of ₩12.8b falling due within a year, and liabilities of ₩375.2m due beyond that. Offsetting this, it had ₩8.34b in cash and ₩5.07b in receivables that were due within 12 months. So it can boast ₩265.9m more liquid assets than total liabilities.

This state of affairs indicates that Semisysco's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩39.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Semisysco 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.

In the last year Semisysco wasn't profitable at an EBIT level, but managed to grow its revenue by 52%, to ₩19b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Semisysco still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩7.1b. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Semisysco (of which 2 are a bit concerning!) 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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