Does Iron Device (KOSDAQ:464500) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Iron Device's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Iron Device had debt of ₩2.33b, up from ₩1.50b in one year. But on the other hand it also has ₩29.9b in cash, leading to a ₩27.6b net cash position.

A Look At Iron Device's Liabilities

According to the last reported balance sheet, Iron Device had liabilities of ₩2.41b due within 12 months, and liabilities of ₩3.18b due beyond 12 months. On the other hand, it had cash of ₩29.9b and ₩667.4m worth of receivables due within a year. So it can boast ₩25.0b more liquid assets than total liabilities.

This luscious liquidity implies that Iron Device's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Iron Device 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 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 .

Check out our latest analysis for Iron Device

In the last year Iron Device wasn't profitable at an EBIT level, but managed to grow its revenue by 34%, to ₩8.4b. With any luck the company will be able to grow its way to profitability.

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 the fact is that over the last twelve months Iron Device lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩2.9b and booked a ₩4.2b accounting loss. But the saving grace is the ₩27.6b on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Iron Device may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Iron Device that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.