These 4 Measures Indicate That iCRAFT (KOSDAQ:052460) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. 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?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for iCRAFT

What Is iCRAFT's Net Debt?

The image below, which you can click on for greater detail, shows that iCRAFT had debt of ₩7.60b at the end of March 2024, a reduction from ₩15.6b over a year. But on the other hand it also has ₩22.1b in cash, leading to a ₩14.5b net cash position.

A Look At iCRAFT's Liabilities

The latest balance sheet data shows that iCRAFT had liabilities of ₩31.7b due within a year, and liabilities of ₩5.77b falling due after that. Offsetting these obligations, it had cash of ₩22.1b as well as receivables valued at ₩14.9b due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that iCRAFT'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 ₩30.0b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, iCRAFT boasts net cash, so it's fair to say it does not have a heavy debt load!

Although iCRAFT made a loss at the EBIT level, last year, it was also good to see that it generated ₩11b in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While iCRAFT 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. Over the last year, iCRAFT actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that iCRAFT has ₩14.5b in net cash. And it impressed us with free cash flow of ₩24b, being 225% of its EBIT. So is iCRAFT's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for iCRAFT 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com