Is FrtekLtd (KOSDAQ:073540) Using Debt Sensibly?

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 can see that Frtek Co.Ltd. (KOSDAQ:073540) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for FrtekLtd

What Is FrtekLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that FrtekLtd had ₩3.27b of debt in March 2024, down from ₩11.1b, one year before. But it also has ₩21.7b in cash to offset that, meaning it has ₩18.4b net cash.

How Healthy Is FrtekLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FrtekLtd had liabilities of ₩12.6b due within 12 months and liabilities of ₩5.46b due beyond that. Offsetting these obligations, it had cash of ₩21.7b as well as receivables valued at ₩4.05b due within 12 months. So it actually has ₩7.70b more liquid assets than total liabilities.

This luscious liquidity implies that FrtekLtd's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that FrtekLtd has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since FrtekLtd will need earnings to service that debt. 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 FrtekLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to ₩26b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is FrtekLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that FrtekLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩6.2b and booked a ₩316m accounting loss. But the saving grace is the ₩18.4b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. Be aware that FrtekLtd is showing 1 warning sign in our investment analysis , 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.

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