Does 3A Logics (KOSDAQ:177900) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, 3A Logics Inc. (KOSDAQ:177900) does carry debt. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is 3A Logics's Debt?

The image below, which you can click on for greater detail, shows that 3A Logics had debt of ₩20.6b at the end of March 2025, a reduction from ₩28.0b over a year. But on the other hand it also has ₩23.1b in cash, leading to a ₩2.49b net cash position.

How Strong Is 3A Logics' Balance Sheet?

According to the last reported balance sheet, 3A Logics had liabilities of ₩15.9b due within 12 months, and liabilities of ₩6.98b due beyond 12 months. On the other hand, it had cash of ₩23.1b and ₩9.70b worth of receivables due within a year. So it can boast ₩9.94b more liquid assets than total liabilities.

This surplus suggests that 3A Logics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, 3A Logics boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for 3A Logics

We also note that 3A Logics improved its EBIT from a last year's loss to a positive ₩1.7b. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While 3A Logics 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, 3A Logics saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that 3A Logics has net cash of ₩2.49b, as well as more liquid assets than liabilities. So while 3A Logics does not have a great balance sheet, it's certainly not too bad. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with 3A Logics (including 1 which is concerning) .

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.