These 4 Measures Indicate That Korea Information Certificate Authority (KOSDAQ:053300) Is Using Debt Reasonably Well

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. We can see that Korea Information Certificate Authority, Inc. (KOSDAQ:053300) does use debt in its business. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Korea Information Certificate Authority

What Is Korea Information Certificate Authority's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Korea Information Certificate Authority had ₩54.6b of debt, an increase on none, over one year. However, it does have ₩96.2b in cash offsetting this, leading to net cash of ₩41.5b.

How Healthy Is Korea Information Certificate Authority's Balance Sheet?

We can see from the most recent balance sheet that Korea Information Certificate Authority had liabilities of ₩132.5b falling due within a year, and liabilities of ₩45.0b due beyond that. On the other hand, it had cash of ₩96.2b and ₩57.8b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩23.6b.

Given Korea Information Certificate Authority has a market capitalization of ₩188.3b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Korea Information Certificate Authority boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Korea Information Certificate Authority grew its EBIT by 27% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. 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 50% 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 ₩41.5b. And we liked the look of last year's 27% year-on-year EBIT growth. So is Korea Information Certificate Authority'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 2 warning signs for Korea Information Certificate Authority that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.