Saltlux (KOSDAQ:304100) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Saltlux Inc. (KOSDAQ:304100) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Saltlux

How Much Debt Does Saltlux Carry?

You can click the graphic below for the historical numbers, but it shows that Saltlux had ₩5.05b of debt in June 2024, down from ₩6.26b, one year before. But on the other hand it also has ₩33.6b in cash, leading to a ₩28.6b net cash position.

How Healthy Is Saltlux's Balance Sheet?

The latest balance sheet data shows that Saltlux had liabilities of ₩12.4b due within a year, and liabilities of ₩18.4b falling due after that. Offsetting this, it had ₩33.6b in cash and ₩3.65b in receivables that were due within 12 months. So it can boast ₩6.40b more liquid assets than total liabilities.

This surplus suggests that Saltlux has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Saltlux 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 Saltlux'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.

Over 12 months, Saltlux reported revenue of ₩43b, which is a gain of 56%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Saltlux?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Saltlux lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩8.0b. While this does make the company a bit risky, it's important to remember it has net cash of ₩28.6b. That means it could keep spending at its current rate for more than two years. Saltlux's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Saltlux you should be aware of, and 1 of them doesn't sit too well with us.

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.