Does Welkeeps HitechLtd (KOSDAQ:043590) Have A Healthy Balance Sheet?

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.' 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. Importantly, Welkeeps Hitech Co.,Ltd (KOSDAQ:043590) does carry debt. But the more important question is: how much risk is that debt creating?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Welkeeps HitechLtd

How Much Debt Does Welkeeps HitechLtd Carry?

As you can see below, at the end of March 2024, Welkeeps HitechLtd had ₩11.8b of debt, up from ₩93.8m a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩23.0b in cash, so it actually has ₩11.2b net cash.

How Strong Is Welkeeps HitechLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Welkeeps HitechLtd had liabilities of ₩15.0b due within 12 months and liabilities of ₩9.46b due beyond that. Offsetting these obligations, it had cash of ₩23.0b as well as receivables valued at ₩11.7b due within 12 months. So it can boast ₩10.2b more liquid assets than total liabilities.

This surplus liquidity suggests that Welkeeps HitechLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Welkeeps HitechLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Welkeeps HitechLtd'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.

Over 12 months, Welkeeps HitechLtd reported revenue of ₩27b, which is a gain of 52%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Welkeeps HitechLtd?

Although Welkeeps HitechLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩5.8b. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We think its revenue growth of 52% is a good sign. We'd see further strong growth as an optimistic indication. 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. For example Welkeeps HitechLtd has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.