Is Plateer (KOSDAQ:367000) Using Too Much Debt?

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. Importantly, Plateer Co., Ltd. (KOSDAQ:367000) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

View our latest analysis for Plateer

What Is Plateer's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Plateer had ₩2.54b of debt, an increase on ₩1.63b, over one year. But it also has ₩16.5b in cash to offset that, meaning it has ₩14.0b net cash.

How Strong Is Plateer's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Plateer had liabilities of ₩9.25b due within 12 months and liabilities of ₩1.19b due beyond that. Offsetting this, it had ₩16.5b in cash and ₩7.69b in receivables that were due within 12 months. So it actually has ₩13.8b more liquid assets than total liabilities.

This surplus liquidity suggests that Plateer's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Plateer has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Plateer 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.

Over 12 months, Plateer made a loss at the EBIT level, and saw its revenue drop to ₩30b, which is a fall of 32%. To be frank that doesn't bode well.

So How Risky Is Plateer?

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 Plateer lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩4.3b of cash and made a loss of ₩4.1b. With only ₩14.0b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For example Plateer has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.