3A Logics (KOSDAQ:177900) Takes On Some Risk With Its Use Of 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, 3A Logics Inc. (KOSDAQ:177900) does carry debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does 3A Logics Carry?

You can click the graphic below for the historical numbers, but it shows that 3A Logics had ₩19.4b of debt in June 2025, down from ₩28.0b, one year before. However, because it has a cash reserve of ₩19.2b, its net debt is less, at about ₩187.3m.

A Look At 3A Logics' Liabilities

We can see from the most recent balance sheet that 3A Logics had liabilities of ₩10.2b falling due within a year, and liabilities of ₩10.9b due beyond that. Offsetting this, it had ₩19.2b in cash and ₩10.5b in receivables that were due within 12 months. So it can boast ₩8.56b more liquid assets than total liabilities.

This short term liquidity is a sign that 3A Logics could probably pay off its debt with ease, as its balance sheet is far from stretched. But either way, 3A Logics has virtually no net debt, so it's fair to say it does not have a heavy debt load!

View our latest analysis for 3A Logics

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

3A Logics has a very low debt to EBITDA ratio of 0.11 so it is strange to see weak interest coverage, with last year's EBIT being only 0.53 times the interest expense. So while we're not necessarily alarmed we think that its debt is far from trivial. We also note that 3A Logics improved its EBIT from a last year's loss to a positive ₩515m. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if 3A Logics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. During the last year, 3A Logics burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

While 3A Logics's interest cover makes us cautious about it, its track record of converting EBIT to free cash flow is no better. But on the brighter side of life, its net debt to EBITDA leaves us feeling more frolicsome. We think that 3A Logics's debt does make it a bit risky, after considering the aforementioned data points together. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. 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. We've identified 3 warning signs with 3A Logics (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.