Is SGA SolutionsLtd (KOSDAQ:184230) A Risky Investment?

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.' 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. We note that SGA Solutions Co.,Ltd. (KOSDAQ:184230) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for SGA SolutionsLtd

What Is SGA SolutionsLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that SGA SolutionsLtd had ₩14.3b of debt in June 2024, down from ₩21.2b, one year before. But on the other hand it also has ₩18.0b in cash, leading to a ₩3.71b net cash position.

A Look At SGA SolutionsLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that SGA SolutionsLtd had liabilities of ₩25.3b due within 12 months and liabilities of ₩5.35b due beyond that. Offsetting these obligations, it had cash of ₩18.0b as well as receivables valued at ₩13.8b due within 12 months. So it actually has ₩1.18b more liquid assets than total liabilities.

This surplus suggests that SGA SolutionsLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, SGA SolutionsLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is SGA SolutionsLtd'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.

In the last year SGA SolutionsLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 2.0%, to ₩51b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is SGA SolutionsLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that SGA SolutionsLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩1.1b of cash and made a loss of ₩1.4b. But the saving grace is the ₩3.71b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for SGA SolutionsLtd that you should be aware of before investing here.

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.