iCRAFT (KOSDAQ:052460) Has Debt But No Earnings; Should You Worry?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies iCRAFT Co., Ltd. (KOSDAQ:052460) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for iCRAFT

What Is iCRAFT's Debt?

The image below, which you can click on for greater detail, shows that iCRAFT had debt of ₩2.78b at the end of September 2020, a reduction from ₩3.71b over a year. But on the other hand it also has ₩11.6b in cash, leading to a ₩8.86b net cash position.

How Strong Is iCRAFT's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that iCRAFT had liabilities of ₩13.1b due within 12 months and liabilities of ₩86.8m due beyond that. Offsetting this, it had ₩11.6b in cash and ₩5.41b in receivables that were due within 12 months. So it can boast ₩3.88b more liquid assets than total liabilities.

This surplus suggests that iCRAFT has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, iCRAFT boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is iCRAFT's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, iCRAFT reported revenue of ₩81b, which is a gain of 9.2%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is iCRAFT?

Although iCRAFT had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩245m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 example, we've discovered 4 warning signs for iCRAFT (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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