We Think FrtekLtd (KOSDAQ:073540) Can Stay On Top Of Its Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Frtek Co.Ltd. (KOSDAQ:073540) makes use of debt. But should shareholders be worried about its use of debt?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is FrtekLtd's Debt?

The image below, which you can click on for greater detail, shows that FrtekLtd had debt of ₩2.86b at the end of March 2025, a reduction from ₩3.27b over a year. But it also has ₩20.9b in cash to offset that, meaning it has ₩18.0b net cash.

How Strong Is FrtekLtd's Balance Sheet?

According to the last reported balance sheet, FrtekLtd had liabilities of ₩10.3b due within 12 months, and liabilities of ₩4.04b due beyond 12 months. Offsetting this, it had ₩20.9b in cash and ₩5.52b in receivables that were due within 12 months. So it actually has ₩12.1b 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.

View our latest analysis for FrtekLtd

It was also good to see that despite losing money on the EBIT line last year, FrtekLtd turned things around in the last 12 months, delivering and EBIT of ₩2.2b. The balance sheet is clearly the area to focus on when you are analysing debt. But it is FrtekLtd'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. FrtekLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, FrtekLtd burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that FrtekLtd has net cash of ₩18.0b, as well as more liquid assets than liabilities. So we don't have any problem with FrtekLtd's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. 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 1 warning sign for FrtekLtd you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.