Is Lightron Fiber-Optic Devices (KOSDAQ:069540) Using Too Much Debt?

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 note that Lightron Fiber-Optic Devices Inc. (KOSDAQ:069540) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Lightron Fiber-Optic Devices

What Is Lightron Fiber-Optic Devices's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Lightron Fiber-Optic Devices had ₩20.2b of debt, an increase on ₩17.0b, over one year. However, because it has a cash reserve of ₩3.43b, its net debt is less, at about ₩16.7b.

A Look At Lightron Fiber-Optic Devices' Liabilities

We can see from the most recent balance sheet that Lightron Fiber-Optic Devices had liabilities of ₩25.3b falling due within a year, and liabilities of ₩3.59b due beyond that. Offsetting these obligations, it had cash of ₩3.43b as well as receivables valued at ₩2.25b due within 12 months. So it has liabilities totalling ₩23.2b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Lightron Fiber-Optic Devices is worth ₩104.9b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Lightron Fiber-Optic Devices'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 Lightron Fiber-Optic Devices had a loss before interest and tax, and actually shrunk its revenue by 60%, to ₩20b. To be frank that doesn't bode well.

Caveat Emptor

While Lightron Fiber-Optic Devices's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₩8.7b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩7.4b in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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 4 warning signs for Lightron Fiber-Optic Devices (2 are concerning!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.