Does IMT (KOSDAQ:451220) Have A Healthy Balance Sheet?

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 can see that IMT Co., Ltd. (KOSDAQ:451220) does use debt in its business. But is this debt a concern to shareholders?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for IMT

What Is IMT's Net Debt?

As you can see below, at the end of June 2024, IMT had ₩7.09b of debt, up from ₩3.30b a year ago. Click the image for more detail. However, it does have ₩39.1b in cash offsetting this, leading to net cash of ₩32.0b.

How Healthy Is IMT's Balance Sheet?

According to the last reported balance sheet, IMT had liabilities of ₩1.67b due within 12 months, and liabilities of ₩18.0b due beyond 12 months. On the other hand, it had cash of ₩39.1b and ₩1.75b worth of receivables due within a year. So it can boast ₩21.2b more liquid assets than total liabilities.

This excess liquidity suggests that IMT is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that IMT has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since IMT 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.

In the last year IMT had a loss before interest and tax, and actually shrunk its revenue by 35%, to ₩5.7b. That makes us nervous, to say the least.

So How Risky Is IMT?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that IMT had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩2.4b of cash and made a loss of ₩3.1b. While this does make the company a bit risky, it's important to remember it has net cash of ₩32.0b. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should learn about the 4 warning signs we've spotted with IMT (including 1 which is significant) .

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.