Here's Why CUROCOM (KOSDAQ:040350) Can Afford Some 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.' 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. We can see that CUROCOM Co., Ltd. (KOSDAQ:040350) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CUROCOM

What Is CUROCOM's Debt?

The image below, which you can click on for greater detail, shows that CUROCOM had debt of ₩14.3b at the end of December 2023, a reduction from ₩23.3b over a year. However, it does have ₩12.1b in cash offsetting this, leading to net debt of about ₩2.15b.

How Strong Is CUROCOM's Balance Sheet?

According to the last reported balance sheet, CUROCOM had liabilities of ₩17.2b due within 12 months, and liabilities of ₩4.25b due beyond 12 months. Offsetting these obligations, it had cash of ₩12.1b as well as receivables valued at ₩17.3b due within 12 months. So it can boast ₩8.09b more liquid assets than total liabilities.

This surplus suggests that CUROCOM has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 CUROCOM 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.

In the last year CUROCOM's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months CUROCOM produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩3.8b at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. This one is a bit too risky for our liking. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that CUROCOM is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.