These 4 Measures Indicate That MAKUS (KOSDAQ:093520) Is Using Debt Extensively

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, MAKUS Inc. (KOSDAQ:093520) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for MAKUS

What Is MAKUS's Net Debt?

You can click the graphic below for the historical numbers, but it shows that MAKUS had ₩26.0b of debt in September 2024, down from ₩48.6b, one year before. However, its balance sheet shows it holds ₩64.4b in cash, so it actually has ₩38.4b net cash.

How Healthy Is MAKUS' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MAKUS had liabilities of ₩406.9b due within 12 months and liabilities of ₩615.8m due beyond that. Offsetting this, it had ₩64.4b in cash and ₩22.1b in receivables that were due within 12 months. So it has liabilities totalling ₩321.1b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₩101.1b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, MAKUS would likely require a major re-capitalisation if it had to pay its creditors today. MAKUS boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

In fact MAKUS's saving grace is its low debt levels, because its EBIT has tanked 27% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if MAKUS can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. MAKUS may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, MAKUS reported free cash flow worth 7.2% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While MAKUS does have more liabilities than liquid assets, it also has net cash of ₩38.4b. Unfortunately, though, both its struggle level of total liabilities and its EBIT growth rate leave us concerned about MAKUS So even though it has net cash, we do think the business has some risks worth watching. 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. Case in point: We've spotted 2 warning signs for MAKUS 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.