Does Nepes Ark (KOSDAQ:330860) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Nepes Ark Corporation (KOSDAQ:330860) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Nepes Ark's Debt?

The image below, which you can click on for greater detail, shows that Nepes Ark had debt of ₩134.1b at the end of December 2024, a reduction from ₩155.6b over a year. However, it does have ₩42.1b in cash offsetting this, leading to net debt of about ₩91.9b.

How Healthy Is Nepes Ark's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nepes Ark had liabilities of ₩50.5b due within 12 months and liabilities of ₩96.4b due beyond that. Offsetting this, it had ₩42.1b in cash and ₩32.0b in receivables that were due within 12 months. So its liabilities total ₩72.8b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₩115.7b, so it does suggest shareholders should keep an eye on Nepes Ark's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nepes Ark's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

View our latest analysis for Nepes Ark

Over 12 months, Nepes Ark made a loss at the EBIT level, and saw its revenue drop to ₩119b, which is a fall of 3.0%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Nepes Ark produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩8.6b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₩7.2b into a profit. In the meantime, we consider the stock very risky. 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 example Nepes Ark has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.