Is IMT (KOSDAQ:451220) 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. As with many other companies IMT Co., Ltd. (KOSDAQ:451220) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for IMT

How Much Debt Does IMT Carry?

As you can see below, at the end of September 2024, IMT had ₩7.48b of debt, up from ₩800.0m a year ago. Click the image for more detail. But on the other hand it also has ₩26.9b in cash, leading to a ₩19.4b net cash position.

A Look At IMT's Liabilities

According to the last reported balance sheet, IMT had liabilities of ₩2.74b due within 12 months, and liabilities of ₩20.0b due beyond 12 months. On the other hand, it had cash of ₩26.9b and ₩2.91b worth of receivables due within a year. So it actually has ₩7.00b more liquid assets than total liabilities.

This surplus suggests that IMT has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 ultimately the future profitability of the business will decide if IMT 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.

Over 12 months, IMT reported revenue of ₩9.3b, which is a gain of 17%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is IMT?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year IMT had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩2.0b of cash and made a loss of ₩2.5b. But the saving grace is the ₩19.4b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for IMT you should be aware of.

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.