Is Korea Information Certificate Authority (KOSDAQ:053300) Using Too Much Debt?

Warren Buffett famously said, '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. We note that Korea Information Certificate Authority, Inc. (KOSDAQ:053300) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Korea Information Certificate Authority

What Is Korea Information Certificate Authority's Net Debt?

As you can see below, at the end of September 2024, Korea Information Certificate Authority had ₩45.6b of debt, up from ₩22.0b a year ago. Click the image for more detail. However, it does have ₩84.3b in cash offsetting this, leading to net cash of ₩38.7b.

A Look At Korea Information Certificate Authority's Liabilities

We can see from the most recent balance sheet that Korea Information Certificate Authority had liabilities of ₩151.1b falling due within a year, and liabilities of ₩12.1b due beyond that. On the other hand, it had cash of ₩84.3b and ₩59.9b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩19.0b.

Since publicly traded Korea Information Certificate Authority shares are worth a total of ₩180.9b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Korea Information Certificate Authority also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that Korea Information Certificate Authority has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Korea Information Certificate Authority's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Korea Information Certificate Authority may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Korea Information Certificate Authority's free cash flow amounted to 48% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While Korea Information Certificate Authority does have more liabilities than liquid assets, it also has net cash of ₩38.7b. And we liked the look of last year's 44% year-on-year EBIT growth. So we don't think Korea Information Certificate Authority's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Korea Information Certificate Authority you should know about.

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.