Does Kisan Telecom (KOSDAQ:035460) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Kisan Telecom Co., Ltd (KOSDAQ:035460) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Kisan Telecom

What Is Kisan Telecom's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Kisan Telecom had ₩35.7b of debt, an increase on ₩23.7b, over one year. However, it also had ₩21.7b in cash, and so its net debt is ₩14.0b.

How Healthy Is Kisan Telecom's Balance Sheet?

We can see from the most recent balance sheet that Kisan Telecom had liabilities of ₩46.0b falling due within a year, and liabilities of ₩19.9b due beyond that. Offsetting these obligations, it had cash of ₩21.7b as well as receivables valued at ₩12.1b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩32.0b.

This is a mountain of leverage relative to its market capitalization of ₩33.2b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is Kisan Telecom's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Kisan Telecom wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to ₩80b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Kisan Telecom produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩1.3b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩1.9b of cash over the last year. So in short it's a really risky stock. 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. For example Kisan Telecom has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.