MAXST (KOSDAQ:377030) 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. We can see that MAXST Co., Ltd. (KOSDAQ:377030) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 MAXST

How Much Debt Does MAXST Carry?

The image below, which you can click on for greater detail, shows that at September 2023 MAXST had debt of ₩9.53b, up from ₩350.0m in one year. However, it does have ₩41.7b in cash offsetting this, leading to net cash of ₩32.1b.

A Look At MAXST's Liabilities

Zooming in on the latest balance sheet data, we can see that MAXST had liabilities of ₩25.2b due within 12 months and liabilities of ₩1.86b due beyond that. On the other hand, it had cash of ₩41.7b and ₩820.0m worth of receivables due within a year. So it actually has ₩15.4b more liquid assets than total liabilities.

This short term liquidity is a sign that MAXST could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MAXST 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 MAXST'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, MAXST made a loss at the EBIT level, and saw its revenue drop to ₩1.5b, which is a fall of 55%. That makes us nervous, to say the least.

So How Risky Is MAXST?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year MAXST had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩12b of cash and made a loss of ₩17b. But the saving grace is the ₩32.1b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. We've identified 4 warning signs with MAXST (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

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.