NuintekLtd (KOSDAQ:012340) Is Carrying A Fair Bit Of Debt

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.' 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, Nuintek Co.,Ltd. (KOSDAQ:012340) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for NuintekLtd

What Is NuintekLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 NuintekLtd had ₩46.2b of debt, an increase on ₩37.8b, over one year. However, it also had ₩28.8b in cash, and so its net debt is ₩17.5b.

How Strong Is NuintekLtd's Balance Sheet?

We can see from the most recent balance sheet that NuintekLtd had liabilities of ₩55.7b falling due within a year, and liabilities of ₩9.47b due beyond that. Offsetting these obligations, it had cash of ₩28.8b as well as receivables valued at ₩13.7b due within 12 months. So it has liabilities totalling ₩22.7b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since NuintekLtd has a market capitalization of ₩41.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 NuintekLtd 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 NuintekLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to ₩82b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, NuintekLtd had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩9.1b. 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. Another cause for caution is that is bled ₩11b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. We've identified 3 warning signs with NuintekLtd (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.