Is Bitnine Co (KOSDAQ:357880) Using Too Much Debt?

Warren Buffett famously said, '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 Bitnine Co, Ltd. (KOSDAQ:357880) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Bitnine Co

What Is Bitnine Co's Net Debt?

As you can see below, at the end of June 2024, Bitnine Co had ₩21.7b of debt, up from ₩19.0b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩6.42b, its net debt is less, at about ₩15.3b.

A Look At Bitnine Co's Liabilities

We can see from the most recent balance sheet that Bitnine Co had liabilities of ₩41.9b falling due within a year, and liabilities of ₩1.58b due beyond that. Offsetting this, it had ₩6.42b in cash and ₩17.2b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩19.8b.

This is a mountain of leverage relative to its market capitalization of ₩30.1b. 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 Bitnine Co 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 Bitnine Co wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to ₩33b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Bitnine Co still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩13b at the EBIT level. 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 ₩14b in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Bitnine Co (3 don't sit too well with us!) that you should be aware of before investing here.

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.