Is Amotech (KOSDAQ:052710) Weighed On By Its Debt Load?

Warren Buffett famously said, '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, Amotech Co., Ltd. (KOSDAQ:052710) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Amotech

What Is Amotech's Debt?

The chart below, which you can click on for greater detail, shows that Amotech had ₩127.2b in debt in June 2024; about the same as the year before. However, it also had ₩36.0b in cash, and so its net debt is ₩91.2b.

How Strong Is Amotech's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Amotech had liabilities of ₩170.7b due within 12 months and liabilities of ₩28.3b due beyond that. Offsetting this, it had ₩36.0b in cash and ₩46.0b in receivables that were due within 12 months. So its liabilities total ₩117.0b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩50.4b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Amotech would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Amotech can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Amotech reported revenue of ₩214b, which is a gain of 6.2%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Amotech had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩25b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩11b over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Amotech (of which 1 makes us a bit uncomfortable!) you should know about.

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.