FASOOLtd (KOSDAQ:150900) Is Making Moderate Use Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that FASOO Co.,Ltd. (KOSDAQ:150900) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for FASOOLtd

How Much Debt Does FASOOLtd Carry?

The image below, which you can click on for greater detail, shows that FASOOLtd had debt of ₩13.8b at the end of September 2020, a reduction from ₩17.1b over a year. However, it does have ₩6.28b in cash offsetting this, leading to net debt of about ₩7.51b.

A Look At FASOOLtd's Liabilities

We can see from the most recent balance sheet that FASOOLtd had liabilities of ₩16.9b falling due within a year, and liabilities of ₩10.4b due beyond that. Offsetting this, it had ₩6.28b in cash and ₩11.2b in receivables that were due within 12 months. So its liabilities total ₩9.80b more than the combination of its cash and short-term receivables.

Given FASOOLtd has a market capitalization of ₩83.3b, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if FASOOLtd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, FASOOLtd made a loss at the EBIT level, and saw its revenue drop to ₩34b, which is a fall of 2.9%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months FASOOLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩5.5b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₩6.7b into a profit. So in short it's a really risky stock. 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 instance, we've identified 2 warning signs for FASOOLtd that you should be aware of.

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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