Does Cafe24 (KOSDAQ:042000) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Cafe24 Corp. (KOSDAQ:042000) does use debt in its business. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Cafe24's Debt?

As you can see below, Cafe24 had ₩3.70b of debt at March 2025, down from ₩12.4b a year prior. But it also has ₩141.5b in cash to offset that, meaning it has ₩137.8b net cash.

How Healthy Is Cafe24's Balance Sheet?

According to the last reported balance sheet, Cafe24 had liabilities of ₩117.4b due within 12 months, and liabilities of ₩14.9b due beyond 12 months. Offsetting these obligations, it had cash of ₩141.5b as well as receivables valued at ₩58.9b due within 12 months. So it can boast ₩68.0b more liquid assets than total liabilities.

This short term liquidity is a sign that Cafe24 could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Cafe24 boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Cafe24

Even more impressive was the fact that Cafe24 grew its EBIT by 245% over twelve months. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Cafe24 can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Cafe24 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, Cafe24 actually produced more free cash flow than EBIT over the last two years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cafe24 has ₩137.8b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩67b, being 235% of its EBIT. So is Cafe24'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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Cafe24 that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.