Does Iron Device (KOSDAQ:464500) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Iron Device Corporation (KOSDAQ:464500) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Iron Device

How Much Debt Does Iron Device Carry?

As you can see below, at the end of September 2024, Iron Device had ₩2.34b of debt, up from ₩1.50b a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩31.2b in cash, so it actually has ₩28.9b net cash.

How Strong Is Iron Device's Balance Sheet?

We can see from the most recent balance sheet that Iron Device had liabilities of ₩1.94b falling due within a year, and liabilities of ₩2.47b due beyond that. Offsetting these obligations, it had cash of ₩31.2b as well as receivables valued at ₩785.1m due within 12 months. So it can boast ₩27.6b more liquid assets than total liabilities.

This excess liquidity is a great indication that Iron Device's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Iron Device 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 Iron Device's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Iron Device wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to ₩8.7b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Iron Device?

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 Iron Device had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩2.6b and booked a ₩2.3b accounting loss. But the saving grace is the ₩28.9b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Iron Device's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Be aware that Iron Device is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.