SUNIC SYSTEM (KOSDAQ:171090) Has A Pretty Healthy Balance Sheet

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. As with many other companies SUNIC SYSTEM Co., Ltd. (KOSDAQ:171090) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for SUNIC SYSTEM

How Much Debt Does SUNIC SYSTEM Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 SUNIC SYSTEM had ₩65.8b of debt, an increase on ₩21.5b, over one year. But it also has ₩110.8b in cash to offset that, meaning it has ₩45.0b net cash.

A Look At SUNIC SYSTEM's Liabilities

We can see from the most recent balance sheet that SUNIC SYSTEM had liabilities of ₩208.1b falling due within a year, and liabilities of ₩25.3b due beyond that. On the other hand, it had cash of ₩110.8b and ₩19.0b worth of receivables due within a year. So its liabilities total ₩103.6b more than the combination of its cash and short-term receivables.

SUNIC SYSTEM has a market capitalization of ₩424.9b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, SUNIC SYSTEM also has more cash than debt, so we're pretty confident it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, SUNIC SYSTEM turned things around in the last 12 months, delivering and EBIT of ₩8.1b. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SUNIC SYSTEM's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While SUNIC SYSTEM has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, SUNIC SYSTEM actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While SUNIC SYSTEM does have more liabilities than liquid assets, it also has net cash of ₩45.0b. And it impressed us with free cash flow of ₩20b, being 251% of its EBIT. So is SUNIC SYSTEM'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 SUNIC SYSTEM's earnings per share history for free.

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.