Ubiquoss Holdings (KOSDAQ:078070) Has A Rock Solid Balance Sheet

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Ubiquoss Holdings Inc. (KOSDAQ:078070) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ubiquoss Holdings

What Is Ubiquoss Holdings's Net Debt?

As you can see below, Ubiquoss Holdings had ₩2.00b of debt at September 2020, down from ₩5.00b a year prior. However, its balance sheet shows it holds ₩168.2b in cash, so it actually has ₩166.2b net cash.

A Look At Ubiquoss Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Ubiquoss Holdings had liabilities of ₩23.4b due within 12 months and liabilities of ₩5.92b due beyond that. Offsetting this, it had ₩168.2b in cash and ₩12.5b in receivables that were due within 12 months. So it can boast ₩151.3b more liquid assets than total liabilities.

This surplus liquidity suggests that Ubiquoss Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Ubiquoss Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Also positive, Ubiquoss Holdings grew its EBIT by 29% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ubiquoss Holdings'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. While Ubiquoss Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Ubiquoss Holdings generated free cash flow amounting to a very robust 97% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Ubiquoss Holdings has net cash of ₩166.2b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₩28b, being 97% of its EBIT. When it comes to Ubiquoss Holdings's debt, we sufficiently relaxed that our mind turns to the jacuzzi. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Ubiquoss Holdings is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

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. 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.
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