Is V-One Tech (KOSDAQ:251630) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that V-One Tech Co., Ltd. (KOSDAQ:251630) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for V-One Tech

What Is V-One Tech's Net Debt?

You can click the graphic below for the historical numbers, but it shows that V-One Tech had ₩18.2b of debt in March 2024, down from ₩47.0b, one year before. However, it does have ₩26.8b in cash offsetting this, leading to net cash of ₩8.55b.

How Healthy Is V-One Tech's Balance Sheet?

According to the last reported balance sheet, V-One Tech had liabilities of ₩60.2b due within 12 months, and liabilities of ₩2.00b due beyond 12 months. Offsetting these obligations, it had cash of ₩26.8b as well as receivables valued at ₩17.2b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩18.2b.

Of course, V-One Tech has a market capitalization of ₩111.1b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, V-One Tech boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, V-One Tech made a loss at the EBIT level, last year, but improved that to positive EBIT of ₩4.6b in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since V-One Tech will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. V-One Tech may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, V-One Tech 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 V-One Tech does have more liabilities than liquid assets, it also has net cash of ₩8.55b. So while V-One Tech does not have a great balance sheet, it's certainly not too bad. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 5 warning signs for V-One Tech (1 is a bit concerning) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com