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. We note that Maum.AI, Inc. (KOSDAQ:377480) does have debt on its balance sheet. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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?
The image below, which you can click on for greater detail, shows that at March 2024 Maum.AI had debt of ₩25.1b, up from ₩21.6b in one year. However, it does have ₩16.2b in cash offsetting this, leading to net debt of about ₩8.96b.
How Healthy Is Maum.AI's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Maum.AI had liabilities of ₩1.56b due within 12 months and liabilities of ₩34.1b due beyond that. Offsetting this, it had ₩16.2b in cash and ₩804.9m in receivables that were due within 12 months. So it has liabilities totalling ₩18.7b more than its cash and near-term receivables, combined.
This deficit isn't so bad because Maum.AI is worth ₩84.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Maum.AI will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Maum.AI had a loss before interest and tax, and actually shrunk its revenue by 12%, to ₩8.6b. We would much prefer see growth.
Caveat Emptor
While Maum.AI's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩5.9b 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. However, it doesn't help that it burned through ₩18b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Maum.AI is showing 2 warning signs in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
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About KOSDAQ:A377480
Maum.AI
Operates as an AI service provider in South Korea, the United States, Canada, and the Philippines.
Mediocre balance sheet low.
