Does WIZ CORP (KOSDAQ:038620) Have A Healthy Balance Sheet?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that WIZ CORP, Inc. (KOSDAQ:038620) does use debt in its business. But is this debt a concern to shareholders?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for WIZ CORP

What Is WIZ CORP's Debt?

As you can see below, at the end of September 2020, WIZ CORP had ₩1.84b of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩22.0b in cash, so it actually has ₩20.2b net cash.

A Look At WIZ CORP's Liabilities

According to the last reported balance sheet, WIZ CORP had liabilities of ₩1.84b due within 12 months, and liabilities of ₩5.31b due beyond 12 months. On the other hand, it had cash of ₩22.0b and ₩2.59b worth of receivables due within a year. So it can boast ₩17.5b more liquid assets than total liabilities.

This excess liquidity is a great indication that WIZ CORP's balance sheet is almost as strong as Fort Knox. 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 WIZ CORP has more cash than debt is arguably a good indication that it can manage its debt safely.

Although WIZ CORP made a loss at the EBIT level, last year, it was also good to see that it generated ₩752m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since WIZ CORP 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While WIZ CORP has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, WIZ CORP actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

While it is always sensible to investigate a company's debt, in this case WIZ CORP has ₩20.2b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩1.5b, being 202% of its EBIT. So is WIZ CORP's debt a risk? It doesn't seem so to us. 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. Be aware that WIZ CORP is showing 5 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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. 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.
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