Is NEXTIN (KOSDAQ:348210) Using Too Much Debt?

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 can see that NEXTIN, Inc. (KOSDAQ:348210) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is NEXTIN's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 NEXTIN had ₩9.50b of debt, an increase on none, over one year. But on the other hand it also has ₩37.8b in cash, leading to a ₩28.3b net cash position.

A Look At NEXTIN's Liabilities

Zooming in on the latest balance sheet data, we can see that NEXTIN had liabilities of ₩19.3b due within 12 months and liabilities of ₩12.9b due beyond that. Offsetting this, it had ₩37.8b in cash and ₩14.4b in receivables that were due within 12 months. So it can boast ₩20.0b more liquid assets than total liabilities.

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

Check out our latest analysis for NEXTIN

Also positive, NEXTIN grew its EBIT by 30% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine NEXTIN's ability to maintain a healthy balance sheet going forward. 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. NEXTIN 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. In the last three years, NEXTIN's free cash flow amounted to 22% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case NEXTIN has ₩28.3b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 30% over the last year. So we don't think NEXTIN's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in NEXTIN, you may well want to click here to check an interactive graph of its earnings per share history .

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.