Namu TechLtd (KOSDAQ:242040) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Namu Tech Co.,Ltd. (KOSDAQ:242040) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Namu TechLtd

What Is Namu TechLtd's Debt?

As you can see below, Namu TechLtd had ₩10.4b of debt at September 2020, down from ₩15.2b a year prior. But on the other hand it also has ₩24.6b in cash, leading to a ₩14.2b net cash position.

How Healthy Is Namu TechLtd's Balance Sheet?

According to the last reported balance sheet, Namu TechLtd had liabilities of ₩26.4b due within 12 months, and liabilities of ₩5.63b due beyond 12 months. On the other hand, it had cash of ₩24.6b and ₩9.92b worth of receivables due within a year. So it can boast ₩2.49b more liquid assets than total liabilities.

This short term liquidity is a sign that Namu TechLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Namu TechLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Namu TechLtd'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.

In the last year Namu TechLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to ₩92b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Namu TechLtd?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Namu TechLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩4.3b and booked a ₩4.1b accounting loss. With only ₩14.2b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For instance, we've identified 2 warning signs for Namu TechLtd 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.

When trading Namu TechLtd or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.