Is Justem (KOSDAQ:417840) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Justem Co., Ltd. (KOSDAQ:417840) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Justem Carry?

You can click the graphic below for the historical numbers, but it shows that Justem had ₩13.2b of debt in September 2024, down from ₩20.7b, one year before. However, it does have ₩9.69b in cash offsetting this, leading to net debt of about ₩3.48b.

A Look At Justem's Liabilities

The latest balance sheet data shows that Justem had liabilities of ₩29.3b due within a year, and liabilities of ₩2.45b falling due after that. On the other hand, it had cash of ₩9.69b and ₩7.08b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩15.0b.

This deficit isn't so bad because Justem is worth ₩58.0b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Justem's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for Justem

In the last year Justem had a loss before interest and tax, and actually shrunk its revenue by 8.1%, to ₩38b. That's not what we would hope to see.

Caveat Emptor

Importantly, Justem had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩9.4b 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. However, it doesn't help that it burned through ₩7.7b of cash over the last year. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Justem (2 are a bit unpleasant!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.