These 4 Measures Indicate That Atec (KOSDAQ:045660) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Atec Co. Ltd. (KOSDAQ:045660) makes use of debt. But is this debt a concern to shareholders?

We've discovered 2 warning signs about Atec. View them for free.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Atec Carry?

As you can see below, at the end of December 2024, Atec had ₩15.0b of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩27.4b in cash, so it actually has ₩12.4b net cash.

A Look At Atec's Liabilities

We can see from the most recent balance sheet that Atec had liabilities of ₩60.5b falling due within a year, and liabilities of ₩3.05b due beyond that. Offsetting this, it had ₩27.4b in cash and ₩17.6b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩18.6b.

Of course, Atec has a market capitalization of ₩191.3b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Atec also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Atec

It was also good to see that despite losing money on the EBIT line last year, Atec turned things around in the last 12 months, delivering and EBIT of ₩1.7b. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Atec 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. Atec 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, Atec actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Atec has ₩12.4b in net cash. And it impressed us with free cash flow of ₩17b, being 1,043% of its EBIT. So we don't think Atec's use of debt is 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. For example, we've discovered 2 warning signs for Atec (1 is potentially serious!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.