Protec Mems Technology (KOSDAQ:147760) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies Protec Mems Technology Inc. (KOSDAQ:147760) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Protec Mems Technology's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Protec Mems Technology had debt of ₩26.3b, up from ₩17.1b in one year. However, because it has a cash reserve of ₩3.94b, its net debt is less, at about ₩22.4b.

How Healthy Is Protec Mems Technology's Balance Sheet?

We can see from the most recent balance sheet that Protec Mems Technology had liabilities of ₩26.9b falling due within a year, and liabilities of ₩5.89b due beyond that. Offsetting this, it had ₩3.94b in cash and ₩3.54b in receivables that were due within 12 months. So its liabilities total ₩25.3b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₩27.3b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Protec Mems Technology'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 Protec Mems Technology

In the last year Protec Mems Technology had a loss before interest and tax, and actually shrunk its revenue by 36%, to ₩24b. To be frank that doesn't bode well.

Caveat Emptor

While Protec Mems Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₩15b. 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 ₩8.7b of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Protec Mems Technology (2 can't be ignored) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.