ItcenentecLtd (KOSDAQ:010280) Takes On Some Risk With Its Use Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Itcenentec Co.,Ltd. (KOSDAQ:010280) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does ItcenentecLtd Carry?

The image below, which you can click on for greater detail, shows that at March 2025 ItcenentecLtd had debt of ₩41.8b, up from ₩11.8b in one year. But on the other hand it also has ₩66.1b in cash, leading to a ₩24.3b net cash position.

How Healthy Is ItcenentecLtd's Balance Sheet?

The latest balance sheet data shows that ItcenentecLtd had liabilities of ₩181.0b due within a year, and liabilities of ₩22.2b falling due after that. Offsetting this, it had ₩66.1b in cash and ₩46.2b in receivables that were due within 12 months. So its liabilities total ₩90.9b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩57.2b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, ItcenentecLtd would probably need a major re-capitalization if its creditors were to demand repayment. ItcenentecLtd boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

Check out our latest analysis for ItcenentecLtd

Even more impressive was the fact that ItcenentecLtd grew its EBIT by 216% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But it is ItcenentecLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. ItcenentecLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, ItcenentecLtd burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While ItcenentecLtd does have more liabilities than liquid assets, it also has net cash of ₩24.3b. And it impressed us with its EBIT growth of 216% over the last year. So while ItcenentecLtd does not have a great balance sheet, it's certainly not too bad. 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 3 warning signs we've spotted with ItcenentecLtd (including 1 which doesn't sit too well with us) .

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.