Does RobostarLtd (KOSDAQ:090360) Have A Healthy Balance Sheet?

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. We note that Robostar Co.,Ltd. (KOSDAQ:090360) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

See our latest analysis for RobostarLtd

What Is RobostarLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that RobostarLtd had ₩1.68b of debt in September 2020, down from ₩2.27b, one year before. However, its balance sheet shows it holds ₩29.3b in cash, so it actually has ₩27.7b net cash.

How Healthy Is RobostarLtd's Balance Sheet?

The latest balance sheet data shows that RobostarLtd had liabilities of ₩51.0b due within a year, and liabilities of ₩4.57b falling due after that. Offsetting these obligations, it had cash of ₩29.3b as well as receivables valued at ₩46.7b due within 12 months. So it can boast ₩20.4b more liquid assets than total liabilities.

This surplus suggests that RobostarLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, RobostarLtd boasts net cash, so it's fair to say it does not have a heavy debt load! 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 RobostarLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, RobostarLtd made a loss at the EBIT level, and saw its revenue drop to ₩149b, which is a fall of 20%. That makes us nervous, to say the least.

So How Risky Is RobostarLtd?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months RobostarLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩13b. However, it has net cash of ₩27.7b, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 RobostarLtd is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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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