Is ASICLAND (KOSDAQ:445090) Using Too Much Debt?

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 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. Importantly, ASICLAND Co., Ltd. (KOSDAQ:445090) does carry debt. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for ASICLAND

How Much Debt Does ASICLAND Carry?

The chart below, which you can click on for greater detail, shows that ASICLAND had ₩24.5b in debt in September 2024; about the same as the year before. But on the other hand it also has ₩38.6b in cash, leading to a ₩14.0b net cash position.

How Strong Is ASICLAND's Balance Sheet?

According to the last reported balance sheet, ASICLAND had liabilities of ₩56.5b due within 12 months, and liabilities of ₩20.2b due beyond 12 months. On the other hand, it had cash of ₩38.6b and ₩8.42b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩29.7b.

Given ASICLAND has a market capitalization of ₩431.9b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, ASICLAND also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if ASICLAND 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 ASICLAND's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is ASICLAND?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year ASICLAND had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩35b of cash and made a loss of ₩3.2b. With only ₩14.0b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for ASICLAND you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.