Is FADU (KOSDAQ:440110) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies FADU Inc. (KOSDAQ:440110) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

See our latest analysis for FADU

What Is FADU's Debt?

As you can see below, FADU had ₩34.5b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₩103.4b in cash offsetting this, leading to net cash of ₩68.9b.

A Look At FADU's Liabilities

According to the last reported balance sheet, FADU had liabilities of ₩45.0b due within 12 months, and liabilities of ₩5.91b due beyond 12 months. Offsetting this, it had ₩103.4b in cash and ₩9.86b in receivables that were due within 12 months. So it actually has ₩62.3b more liquid assets than total liabilities.

This surplus suggests that FADU has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, FADU boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if FADU can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year FADU had a loss before interest and tax, and actually shrunk its revenue by 73%, to ₩14b. To be frank that doesn't bode well.

So How Risky Is FADU?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that FADU had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩123b and booked a ₩74b accounting loss. With only ₩68.9b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for FADU (1 is concerning!) that you should be aware of before investing here.

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.