Is KESPION (KOSDAQ:079190) A Risky Investment?

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. We can see that KESPION Co., Ltd. (KOSDAQ:079190) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've discovered 2 warning signs about KESPION. View them for free.

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does KESPION Carry?

As you can see below, KESPION had ₩4.83b of debt at December 2024, down from ₩6.60b a year prior. However, its balance sheet shows it holds ₩14.3b in cash, so it actually has ₩9.46b net cash.

How Strong Is KESPION's Balance Sheet?

We can see from the most recent balance sheet that KESPION had liabilities of ₩13.8b falling due within a year, and liabilities of ₩3.66b due beyond that. Offsetting this, it had ₩14.3b in cash and ₩2.59b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩628.5m.

Given KESPION has a market capitalization of ₩20.6b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, KESPION also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is KESPION'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.

Check out our latest analysis for KESPION

Over 12 months, KESPION made a loss at the EBIT level, and saw its revenue drop to ₩33b, which is a fall of 48%. To be frank that doesn't bode well.

So How Risky Is KESPION?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year KESPION had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩3.6b and booked a ₩3.0b accounting loss. But the saving grace is the ₩9.46b on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for KESPION you should know about.

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.