Is CreoSGLtd (KOSDAQ:040350) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that CreoSG Co.,Ltd. (KOSDAQ:040350) does have debt on its balance sheet. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for CreoSGLtd

What Is CreoSGLtd's Debt?

The image below, which you can click on for greater detail, shows that CreoSGLtd had debt of ₩14.5b at the end of March 2024, a reduction from ₩23.5b over a year. But on the other hand it also has ₩17.5b in cash, leading to a ₩3.03b net cash position.

A Look At CreoSGLtd's Liabilities

We can see from the most recent balance sheet that CreoSGLtd had liabilities of ₩18.5b falling due within a year, and liabilities of ₩4.25b due beyond that. Offsetting these obligations, it had cash of ₩17.5b as well as receivables valued at ₩9.99b due within 12 months. So it can boast ₩4.71b more liquid assets than total liabilities.

This short term liquidity is a sign that CreoSGLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, CreoSGLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since CreoSGLtd will need earnings to service that debt. 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.

Over 12 months, CreoSGLtd made a loss at the EBIT level, and saw its revenue drop to ₩8.5b, which is a fall of 16%. That's not what we would hope to see.

So How Risky Is CreoSGLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year CreoSGLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩4.8b and booked a ₩13b accounting loss. But the saving grace is the ₩3.03b 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with CreoSGLtd (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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. 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.

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