Plantynet (KOSDAQ:075130) Could Easily Take On More Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Plantynet Co., Ltd. (KOSDAQ:075130) makes use of debt. But the more important question is: how much risk is that debt creating?

We've discovered 5 warning signs about Plantynet. View them for free.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Plantynet's Debt?

The image below, which you can click on for greater detail, shows that Plantynet had debt of ₩2.27b at the end of December 2024, a reduction from ₩3.02b over a year. However, its balance sheet shows it holds ₩33.0b in cash, so it actually has ₩30.7b net cash.

A Look At Plantynet's Liabilities

According to the last reported balance sheet, Plantynet had liabilities of ₩10.8b due within 12 months, and liabilities of ₩3.96b due beyond 12 months. On the other hand, it had cash of ₩33.0b and ₩7.31b worth of receivables due within a year. So it can boast ₩25.5b more liquid assets than total liabilities.

This excess liquidity is a great indication that Plantynet's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Plantynet has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Plantynet

In addition to that, we're happy to report that Plantynet has boosted its EBIT by 74%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is Plantynet'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. Plantynet 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. Happily for any shareholders, Plantynet actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Plantynet has ₩30.7b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 189% of that EBIT to free cash flow, bringing in ₩3.1b. At the end of the day we're not concerned about Plantynet's debt. 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. Be aware that Plantynet is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.