ABCO Electronics (KOSDAQ:036010) Has A Rock Solid Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 ABCO Electronics Co., Ltd. (KOSDAQ:036010) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does ABCO Electronics Carry?

The chart below, which you can click on for greater detail, shows that ABCO Electronics had ₩12.8b in debt in June 2025; about the same as the year before. But on the other hand it also has ₩50.5b in cash, leading to a ₩37.7b net cash position.

How Strong Is ABCO Electronics' Balance Sheet?

According to the last reported balance sheet, ABCO Electronics had liabilities of ₩25.7b due within 12 months, and liabilities of ₩11.0b due beyond 12 months. Offsetting this, it had ₩50.5b in cash and ₩19.6b in receivables that were due within 12 months. So it can boast ₩33.4b more liquid assets than total liabilities.

It's good to see that ABCO Electronics has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that ABCO Electronics has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for ABCO Electronics

Although ABCO Electronics made a loss at the EBIT level, last year, it was also good to see that it generated ₩1.6b in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ABCO Electronics 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. ABCO Electronics may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, ABCO Electronics actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case ABCO Electronics has ₩37.7b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 538% of that EBIT to free cash flow, bringing in ₩8.8b. So we don't think ABCO Electronics's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that ABCO Electronics is showing 3 warning signs in our investment analysis , and 1 of those is a bit 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.

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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.