Health Check: How Prudently Does ADTechnologyLtd (KOSDAQ:200710) Use 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.' 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 ADTechnology Co.,Ltd. (KOSDAQ:200710) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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

See our latest analysis for ADTechnologyLtd

How Much Debt Does ADTechnologyLtd Carry?

As you can see below, ADTechnologyLtd had ₩61.0b of debt at June 2024, down from ₩64.1b a year prior. But on the other hand it also has ₩108.2b in cash, leading to a ₩47.2b net cash position.

How Strong Is ADTechnologyLtd's Balance Sheet?

The latest balance sheet data shows that ADTechnologyLtd had liabilities of ₩90.0b due within a year, and liabilities of ₩36.5b falling due after that. Offsetting these obligations, it had cash of ₩108.2b as well as receivables valued at ₩20.1b due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to ADTechnologyLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩297.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that ADTechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if ADTechnologyLtd 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.

In the last year ADTechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 32%, to ₩112b. With any luck the company will be able to grow its way to profitability.

So How Risky Is ADTechnologyLtd?

Although ADTechnologyLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩11b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 32% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for ADTechnologyLtd you should know about.

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.