Does THiRA-UTECH (KOSDAQ:322180) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that THiRA-UTECH CO., LTD. (KOSDAQ:322180) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for THiRA-UTECH

How Much Debt Does THiRA-UTECH Carry?

As you can see below, at the end of March 2024, THiRA-UTECH had ₩18.4b of debt, up from ₩7.22b a year ago. Click the image for more detail. On the flip side, it has ₩12.4b in cash leading to net debt of about ₩6.01b.

How Strong Is THiRA-UTECH's Balance Sheet?

According to the last reported balance sheet, THiRA-UTECH had liabilities of ₩35.4b due within 12 months, and liabilities of ₩15.8b due beyond 12 months. On the other hand, it had cash of ₩12.4b and ₩9.93b worth of receivables due within a year. So its liabilities total ₩28.9b more than the combination of its cash and short-term receivables.

THiRA-UTECH has a market capitalization of ₩89.4b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since THiRA-UTECH 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.

In the last year THiRA-UTECH wasn't profitable at an EBIT level, but managed to grow its revenue by 58%, to ₩60b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though THiRA-UTECH managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩5.5b. 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. Another cause for caution is that is bled ₩5.3b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for THiRA-UTECH you should know about.

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.

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