Is Welkeeps HitechLtd (KOSDAQ:043590) Using Debt In A Risky Way?

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. We note that Welkeeps Hitech Co.,Ltd (KOSDAQ:043590) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Welkeeps HitechLtd

What Is Welkeeps HitechLtd's Debt?

As you can see below, at the end of September 2024, Welkeeps HitechLtd had ₩11.0b of debt, up from ₩6.90m a year ago. Click the image for more detail. But on the other hand it also has ₩11.8b in cash, leading to a ₩729.8m net cash position.

How Healthy Is Welkeeps HitechLtd's Balance Sheet?

According to the last reported balance sheet, Welkeeps HitechLtd had liabilities of ₩7.56b due within 12 months, and liabilities of ₩9.70b due beyond 12 months. Offsetting this, it had ₩11.8b in cash and ₩4.74b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩755.5m.

Of course, Welkeeps HitechLtd has a market capitalization of ₩17.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Welkeeps HitechLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year Welkeeps HitechLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 46%, to ₩29b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Welkeeps HitechLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Welkeeps HitechLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩5.6b and booked a ₩6.4b accounting loss. With only ₩729.8m on the balance sheet, it would appear that its going to need to raise capital again soon. Welkeeps HitechLtd's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Welkeeps HitechLtd (1 is a bit concerning) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.