Solution Advanced Technology (KOSDAQ:351320) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Solution Advanced Technology Co., Ltd. (KOSDAQ:351320) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Solution Advanced Technology

What Is Solution Advanced Technology's Debt?

As you can see below, Solution Advanced Technology had ₩12.0b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₩5.23b in cash, and so its net debt is ₩6.80b.

How Strong Is Solution Advanced Technology's Balance Sheet?

We can see from the most recent balance sheet that Solution Advanced Technology had liabilities of ₩14.1b falling due within a year, and liabilities of ₩9.21b due beyond that. Offsetting these obligations, it had cash of ₩5.23b as well as receivables valued at ₩10.7b due within 12 months. So it has liabilities totalling ₩7.41b more than its cash and near-term receivables, combined.

Since publicly traded Solution Advanced Technology shares are worth a total of ₩39.6b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Solution Advanced Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Solution Advanced Technology made a loss at the EBIT level, and saw its revenue drop to ₩14b, which is a fall of 42%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Solution Advanced Technology's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₩9.6b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩3.9b in negative free cash flow over the last twelve months. So suffice it to say 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Solution Advanced Technology (of which 1 is significant!) 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.

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