Is AUROS Technology (KOSDAQ:322310) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that AUROS Technology, Inc. (KOSDAQ:322310) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 AUROS Technology's Debt?

As you can see below, at the end of March 2025, AUROS Technology had ₩10.2b of debt, up from none a year ago. Click the image for more detail. However, it does have ₩13.0b in cash offsetting this, leading to net cash of ₩2.82b.

A Look At AUROS Technology's Liabilities

The latest balance sheet data shows that AUROS Technology had liabilities of ₩21.2b due within a year, and liabilities of ₩6.10b falling due after that. On the other hand, it had cash of ₩13.0b and ₩10.7b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩3.62b.

Of course, AUROS Technology has a market capitalization of ₩179.5b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, AUROS Technology also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for AUROS Technology

Although AUROS Technology made a loss at the EBIT level, last year, it was also good to see that it generated ₩12b in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if AUROS Technology 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. AUROS Technology 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. During the last year, AUROS Technology burned a lot of cash. 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

We could understand if investors are concerned about AUROS Technology's liabilities, but we can be reassured by the fact it has has net cash of ₩2.82b. So we are not troubled with AUROS Technology's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that AUROS Technology is showing 1 warning sign in our investment analysis , you should know about...

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.