Would Ram Technology (KOSDAQ:171010) Be Better Off With Less Debt?

Warren Buffett famously said, '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. We note that Ram Technology Co., Ltd (KOSDAQ:171010) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Ram Technology

How Much Debt Does Ram Technology Carry?

As you can see below, at the end of June 2024, Ram Technology had ₩50.1b of debt, up from ₩29.8b a year ago. Click the image for more detail. However, it does have ₩19.7b in cash offsetting this, leading to net debt of about ₩30.4b.

A Look At Ram Technology's Liabilities

We can see from the most recent balance sheet that Ram Technology had liabilities of ₩31.6b falling due within a year, and liabilities of ₩22.4b due beyond that. Offsetting this, it had ₩19.7b in cash and ₩4.34b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩30.0b.

This is a mountain of leverage relative to its market capitalization of ₩45.0b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ram 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.

Over 12 months, Ram Technology made a loss at the EBIT level, and saw its revenue drop to ₩44b, which is a fall of 22%. That makes us nervous, to say the least.

Caveat Emptor

While Ram 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. To be specific the EBIT loss came in at ₩2.7b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩12b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Ram Technology (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.