Is PAKERS.Co.Ltd (KOSDAQ:065690) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that PAKERS.Co.,Ltd. (KOSDAQ:065690) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for PAKERS.Co.Ltd

How Much Debt Does PAKERS.Co.Ltd Carry?

As you can see below, at the end of September 2023, PAKERS.Co.Ltd had ₩50.0b of debt, up from ₩40.0b a year ago. Click the image for more detail. However, it also had ₩18.5b in cash, and so its net debt is ₩31.6b.

How Healthy Is PAKERS.Co.Ltd's Balance Sheet?

According to the last reported balance sheet, PAKERS.Co.Ltd had liabilities of ₩64.1b due within 12 months, and liabilities of ₩7.18b due beyond 12 months. Offsetting this, it had ₩18.5b in cash and ₩21.1b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩31.6b.

The deficiency here weighs heavily on the ₩18.7b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, PAKERS.Co.Ltd would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is PAKERS.Co.Ltd'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, PAKERS.Co.Ltd made a loss at the EBIT level, and saw its revenue drop to ₩66b, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

Not only did PAKERS.Co.Ltd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₩8.7b. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through ₩4.2b in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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. Case in point: We've spotted 2 warning signs for PAKERS.Co.Ltd you should be aware of, and 1 of them is a bit unpleasant.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.