We Think SGA SolutionsLtd (KOSDAQ:184230) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that SGA Solutions Co.,Ltd. (KOSDAQ:184230) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is SGA SolutionsLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 SGA SolutionsLtd had debt of ₩38.6b, up from ₩14.3b in one year. On the flip side, it has ₩13.5b in cash leading to net debt of about ₩25.1b.

How Healthy Is SGA SolutionsLtd's Balance Sheet?

We can see from the most recent balance sheet that SGA SolutionsLtd had liabilities of ₩29.4b falling due within a year, and liabilities of ₩24.1b due beyond that. On the other hand, it had cash of ₩13.5b and ₩6.81b worth of receivables due within a year. So it has liabilities totalling ₩33.2b more than its cash and near-term receivables, combined.

This deficit isn't so bad because SGA SolutionsLtd is worth ₩69.4b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SGA SolutionsLtd will need earnings to service that debt. 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.

Check out our latest analysis for SGA SolutionsLtd

Over 12 months, SGA SolutionsLtd reported revenue of ₩44b, which is a gain of 4.1%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, SGA SolutionsLtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩3.4b. 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. However, it doesn't help that it burned through ₩28b of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 5 warning signs with SGA SolutionsLtd (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.