Is WebCash (KOSDAQ:053580) Using Too Much 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. As with many other companies WebCash Corporation (KOSDAQ:053580) makes use of debt. But should shareholders be worried about its use of debt?

Our free stock report includes 2 warning signs investors should be aware of before investing in WebCash. Read for free now.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is WebCash's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 WebCash had ₩2.68b of debt, an increase on none, over one year. However, it does have ₩16.1b in cash offsetting this, leading to net cash of ₩13.5b.

A Look At WebCash's Liabilities

We can see from the most recent balance sheet that WebCash had liabilities of ₩15.5b falling due within a year, and liabilities of ₩8.02b due beyond that. Offsetting this, it had ₩16.1b in cash and ₩9.18b in receivables that were due within 12 months. So it can boast ₩1.76b more liquid assets than total liabilities.

This state of affairs indicates that WebCash's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩197.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, WebCash boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for WebCash

WebCash's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine WebCash'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. WebCash 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. Over the most recent three years, WebCash recorded free cash flow worth 56% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case WebCash has ₩13.5b in net cash and a decent-looking balance sheet. So is WebCash's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 2 warning signs for WebCash you should be aware of, and 1 of them can't be ignored.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.