Kisan Telecom (KOSDAQ:035460) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Kisan Telecom Co., Ltd (KOSDAQ:035460) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

Check out our latest analysis for Kisan Telecom

How Much Debt Does Kisan Telecom Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Kisan Telecom had debt of ₩31.0b, up from ₩19.5b in one year. On the flip side, it has ₩17.2b in cash leading to net debt of about ₩13.7b.

How Strong Is Kisan Telecom's Balance Sheet?

The latest balance sheet data shows that Kisan Telecom had liabilities of ₩43.2b due within a year, and liabilities of ₩15.1b falling due after that. Offsetting these obligations, it had cash of ₩17.2b as well as receivables valued at ₩10.8b due within 12 months. So its liabilities total ₩30.2b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of ₩27.4b, we think shareholders really should watch Kisan Telecom's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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.

Over 12 months, Kisan Telecom made a loss at the EBIT level, and saw its revenue drop to ₩70b, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

Not only did Kisan Telecom's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₩1.2b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₩8.9b in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Kisan Telecom is showing 1 warning sign in our investment analysis , 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.