Is Maum.AI (KOSDAQ:377480) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Maum.AI, Inc. (KOSDAQ:377480) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Maum.AI

How Much Debt Does Maum.AI Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Maum.AI had ₩25.5b of debt, an increase on ₩21.5b, over one year. However, it does have ₩16.0b in cash offsetting this, leading to net debt of about ₩9.49b.

A Look At Maum.AI's Liabilities

We can see from the most recent balance sheet that Maum.AI had liabilities of ₩16.2b falling due within a year, and liabilities of ₩16.1b due beyond that. Offsetting this, it had ₩16.0b in cash and ₩1.10b in receivables that were due within 12 months. So its liabilities total ₩15.1b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Maum.AI is worth ₩75.5b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Maum.AI'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.

In the last year Maum.AI had a loss before interest and tax, and actually shrunk its revenue by 16%, to ₩8.6b. That's not what we would hope to see.

Caveat Emptor

Not only did Maum.AI's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₩6.3b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩17b in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Maum.AI you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.