Is E8IGHTltd (KOSDAQ:418620) A Risky Investment?

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.' 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 E8IGHT Co.,ltd (KOSDAQ:418620) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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 E8IGHTltd

How Much Debt Does E8IGHTltd Carry?

As you can see below, at the end of March 2024, E8IGHTltd had ₩5.10b of debt, up from ₩3.27b a year ago. Click the image for more detail. But it also has ₩19.2b in cash to offset that, meaning it has ₩14.1b net cash.

How Strong Is E8IGHTltd's Balance Sheet?

According to the last reported balance sheet, E8IGHTltd had liabilities of ₩9.84b due within 12 months, and liabilities of ₩1.16b due beyond 12 months. On the other hand, it had cash of ₩19.2b and ₩121.3m worth of receivables due within a year. So it actually has ₩8.34b more liquid assets than total liabilities.

This short term liquidity is a sign that E8IGHTltd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, E8IGHTltd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is E8IGHTltd'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 E8IGHTltd wasn't profitable at an EBIT level, but managed to grow its revenue by 275%, to ₩3.6b. That's virtually the hole-in-one of revenue growth!

So How Risky Is E8IGHTltd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that E8IGHTltd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩5.8b and booked a ₩8.7b accounting loss. But the saving grace is the ₩14.1b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, E8IGHTltd's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 3 warning signs for E8IGHTltd you should be aware of, and 1 of them is concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com