CUROCOM (KOSDAQ:040350) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 CUROCOM Co., Ltd. (KOSDAQ:040350) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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, 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.

Check out our latest analysis for CUROCOM

How Much Debt Does CUROCOM Carry?

You can click the graphic below for the historical numbers, but it shows that CUROCOM had ₩12.3b of debt in September 2020, down from ₩30.6b, one year before. However, because it has a cash reserve of ₩2.10b, its net debt is less, at about ₩10.2b.

How Strong Is CUROCOM's Balance Sheet?

The latest balance sheet data shows that CUROCOM had liabilities of ₩35.5b due within a year, and liabilities of ₩5.41b falling due after that. On the other hand, it had cash of ₩2.10b and ₩12.5b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩26.3b.

Given CUROCOM has a market capitalization of ₩222.1b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since CUROCOM 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, CUROCOM made a loss at the EBIT level, and saw its revenue drop to ₩15b, which is a fall of 6.7%. We would much prefer see growth.

Caveat Emptor

Importantly, CUROCOM had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩11b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩13b of cash over the last year. So in short it's a really risky stock. 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. Case in point: We've spotted 4 warning signs for CUROCOM you should be aware of, and 2 of them shouldn't be ignored.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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