Is ROBOTIS (KOSDAQ:108490) Weighed On By Its Debt Load?

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.' 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. As with many other companies ROBOTIS Co., Ltd. (KOSDAQ:108490) makes use of 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

View our latest analysis for ROBOTIS

What Is ROBOTIS's Debt?

You can click the graphic below for the historical numbers, but it shows that ROBOTIS had ₩2.75b of debt in September 2024, down from ₩9.56b, one year before. However, its balance sheet shows it holds ₩37.8b in cash, so it actually has ₩35.0b net cash.

A Look At ROBOTIS' Liabilities

According to the last reported balance sheet, ROBOTIS had liabilities of ₩7.19b due within 12 months, and liabilities of ₩388.1m due beyond 12 months. On the other hand, it had cash of ₩37.8b and ₩1.84b worth of receivables due within a year. So it can boast ₩32.1b more liquid assets than total liabilities.

This short term liquidity is a sign that ROBOTIS could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ROBOTIS boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if ROBOTIS 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.

In the last year ROBOTIS wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to ₩32b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is ROBOTIS?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ROBOTIS had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩2.0b and booked a ₩5.0b accounting loss. But the saving grace is the ₩35.0b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with ROBOTIS .

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.