Is EM-Tech.CO (KOSDAQ:091120) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies EM-Tech.CO., LTD. (KOSDAQ:091120) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does EM-Tech.CO Carry?

The image below, which you can click on for greater detail, shows that EM-Tech.CO had debt of ₩113.7b at the end of December 2024, a reduction from ₩121.2b over a year. On the flip side, it has ₩71.4b in cash leading to net debt of about ₩42.3b.

A Look At EM-Tech.CO's Liabilities

The latest balance sheet data shows that EM-Tech.CO had liabilities of ₩108.6b due within a year, and liabilities of ₩26.5b falling due after that. Offsetting these obligations, it had cash of ₩71.4b as well as receivables valued at ₩18.7b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩45.1b.

EM-Tech.CO has a market capitalization of ₩188.0b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is EM-Tech.CO'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 EM-Tech.CO

Over 12 months, EM-Tech.CO made a loss at the EBIT level, and saw its revenue drop to ₩168b, which is a fall of 36%. To be frank that doesn't bode well.

Caveat Emptor

Not only did EM-Tech.CO's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₩31b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩2.4b of cash over the last year. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with EM-Tech.CO , and understanding them should be part of your investment process.

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.