Is Wooriro (KOSDAQ:046970) A Risky Investment?

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.' 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. We note that Wooriro Co., Ltd (KOSDAQ:046970) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Wooriro

How Much Debt Does Wooriro Carry?

The chart below, which you can click on for greater detail, shows that Wooriro had ₩9.14b in debt in June 2024; about the same as the year before. But it also has ₩25.0b in cash to offset that, meaning it has ₩15.8b net cash.

A Look At Wooriro's Liabilities

The latest balance sheet data shows that Wooriro had liabilities of ₩13.2b due within a year, and liabilities of ₩2.77b falling due after that. On the other hand, it had cash of ₩25.0b and ₩8.90b worth of receivables due within a year. So it can boast ₩17.9b more liquid assets than total liabilities.

This surplus liquidity suggests that Wooriro's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Wooriro has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Wooriro 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.

In the last year Wooriro had a loss before interest and tax, and actually shrunk its revenue by 42%, to ₩46b. That makes us nervous, to say the least.

So How Risky Is Wooriro?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Wooriro lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩2.1b and booked a ₩5.0b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩15.8b. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example, we've discovered 1 warning sign for Wooriro that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.