Is Ace Technologies (KOSDAQ:088800) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Ace Technologies Corp. (KOSDAQ:088800) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Ace Technologies

How Much Debt Does Ace Technologies Carry?

As you can see below, Ace Technologies had ₩134.8b of debt at March 2024, down from ₩209.5b a year prior. On the flip side, it has ₩19.6b in cash leading to net debt of about ₩115.2b.

How Strong Is Ace Technologies' Balance Sheet?

According to the last reported balance sheet, Ace Technologies had liabilities of ₩209.7b due within 12 months, and liabilities of ₩10.7b due beyond 12 months. Offsetting these obligations, it had cash of ₩19.6b as well as receivables valued at ₩55.4b due within 12 months. So its liabilities total ₩145.3b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩59.9b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Ace Technologies would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Ace Technologies'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.

Over 12 months, Ace Technologies made a loss at the EBIT level, and saw its revenue drop to ₩126b, which is a fall of 45%. That makes us nervous, to say the least.

Caveat Emptor

While Ace Technologies's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable ₩59b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of ₩76b didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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 3 warning signs for Ace Technologies (of which 2 can't be ignored!) 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.