Would EM-Tech.CO (KOSDAQ:091120) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, EM-Tech.CO., LTD. (KOSDAQ:091120) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for EM-Tech.CO

How Much Debt Does EM-Tech.CO Carry?

The chart below, which you can click on for greater detail, shows that EM-Tech.CO had ₩122.6b in debt in June 2024; about the same as the year before. On the flip side, it has ₩98.9b in cash leading to net debt of about ₩23.7b.

How Strong Is EM-Tech.CO's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that EM-Tech.CO had liabilities of ₩45.3b due within 12 months and liabilities of ₩97.1b due beyond that. Offsetting these obligations, it had cash of ₩98.9b as well as receivables valued at ₩48.9b due within 12 months. So it actually has ₩5.49b more liquid assets than total liabilities.

This state of affairs indicates that EM-Tech.CO's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩377.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, EM-Tech.CO made a loss at the EBIT level, and saw its revenue drop to ₩225b, which is a fall of 28%. That makes us nervous, to say the least.

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 ₩14b at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. So it seems too risky for our taste. 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. For instance, we've identified 2 warning signs for EM-Tech.CO that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.