SoftCamp (KOSDAQ:258790) Is Carrying A Fair Bit Of Debt

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.' 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 note that SoftCamp Co., Ltd. (KOSDAQ:258790) 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SoftCamp's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 SoftCamp had ₩20.1b of debt, an increase on ₩6.40b, over one year. However, it also had ₩5.60b in cash, and so its net debt is ₩14.5b.

How Healthy Is SoftCamp's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SoftCamp had liabilities of ₩8.98b due within 12 months and liabilities of ₩16.8b due beyond that. Offsetting this, it had ₩5.60b in cash and ₩2.39b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩17.8b.

This is a mountain of leverage relative to its market capitalization of ₩27.1b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 SoftCamp will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for SoftCamp

Over 12 months, SoftCamp made a loss at the EBIT level, and saw its revenue drop to ₩18b, which is a fall of 2.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months SoftCamp produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩1.2b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩10b 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with SoftCamp (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.

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.