Health Check: How Prudently Does CUBOX (KOSDAQ:340810) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 CUBOX Co., Ltd (KOSDAQ:340810) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is CUBOX's Debt?

As you can see below, CUBOX had ₩8.82b of debt at December 2024, down from ₩12.2b a year prior. But on the other hand it also has ₩11.1b in cash, leading to a ₩2.26b net cash position.

How Healthy Is CUBOX's Balance Sheet?

The latest balance sheet data shows that CUBOX had liabilities of ₩17.8b due within a year, and liabilities of ₩1.31b falling due after that. Offsetting these obligations, it had cash of ₩11.1b as well as receivables valued at ₩1.36b due within 12 months. So its liabilities total ₩6.63b more than the combination of its cash and short-term receivables.

Since publicly traded CUBOX shares are worth a total of ₩33.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, CUBOX also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is CUBOX'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.

View our latest analysis for CUBOX

Over 12 months, CUBOX reported revenue of ₩14b, which is a gain of 2.5%, 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.

So How Risky Is CUBOX?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year CUBOX had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩9.7b of cash and made a loss of ₩11b. But at least it has ₩2.26b on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that CUBOX is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.