Health Check: How Prudently Does ESTsoft (KOSDAQ:047560) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, ESTsoft Corp. (KOSDAQ:047560) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for ESTsoft

How Much Debt Does ESTsoft Carry?

You can click the graphic below for the historical numbers, but it shows that ESTsoft had ₩30.0b of debt in September 2024, down from ₩43.3b, one year before. But on the other hand it also has ₩83.1b in cash, leading to a ₩53.1b net cash position.

A Look At ESTsoft's Liabilities

We can see from the most recent balance sheet that ESTsoft had liabilities of ₩62.2b falling due within a year, and liabilities of ₩34.3b due beyond that. Offsetting these obligations, it had cash of ₩83.1b as well as receivables valued at ₩16.2b due within 12 months. So it can boast ₩2.89b more liquid assets than total liabilities.

This state of affairs indicates that ESTsoft's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩237.9b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that ESTsoft has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine ESTsoft's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year ESTsoft wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to ₩105b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is ESTsoft?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months ESTsoft lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩5.2b of cash and made a loss of ₩12b. But the saving grace is the ₩53.1b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For instance, we've identified 2 warning signs for ESTsoft (1 is a bit concerning) you should be aware of.

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.