Is FADU (KOSDAQ:440110) Using Debt In A Risky Way?

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 note that FADU Inc. (KOSDAQ:440110) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is FADU's Debt?

The image below, which you can click on for greater detail, shows that FADU had debt of ₩26.6b at the end of June 2025, a reduction from ₩34.5b over a year. However, it does have ₩38.0b in cash offsetting this, leading to net cash of ₩11.4b.

How Strong Is FADU's Balance Sheet?

We can see from the most recent balance sheet that FADU had liabilities of ₩40.2b falling due within a year, and liabilities of ₩3.80b due beyond that. Offsetting this, it had ₩38.0b in cash and ₩9.01b in receivables that were due within 12 months. So it can boast ₩3.02b more liquid assets than total liabilities.

This state of affairs indicates that FADU's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩1.18t company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that FADU has more cash than debt is arguably a good indication that it can manage its debt safely. 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 FADU's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for FADU

Over 12 months, FADU reported revenue of ₩77b, which is a gain of 443%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is FADU?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months FADU lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩55b of cash and made a loss of ₩81b. With only ₩11.4b on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that FADU has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 FADU has 2 warning signs (and 1 which is potentially serious) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.