Is Robotis Co.Ltd (KOSDAQ:108490) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Robotis Co,.Ltd (KOSDAQ:108490) does use debt in its business. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Robotis Co.Ltd

What Is Robotis Co.Ltd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Robotis Co.Ltd had ₩7.80b of debt, an increase on none, over one year. However, its balance sheet shows it holds ₩34.4b in cash, so it actually has ₩26.6b net cash.

A Look At Robotis Co.Ltd's Liabilities

According to the last reported balance sheet, Robotis Co.Ltd had liabilities of ₩1.14b due within 12 months, and liabilities of ₩8.68b due beyond 12 months. Offsetting these obligations, it had cash of ₩34.4b as well as receivables valued at ₩787.8m due within 12 months. So it can boast ₩25.4b more liquid assets than total liabilities.

This short term liquidity is a sign that Robotis Co.Ltd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Robotis Co.Ltd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Robotis Co.Ltd will need earnings to service that debt. 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.

In the last year Robotis Co.Ltd had a loss before interest and tax, and actually shrunk its revenue by 24%, to ₩19b. That makes us nervous, to say the least.

So How Risky Is Robotis Co.Ltd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Robotis Co.Ltd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩3.4b of cash and made a loss of ₩135m. With only ₩26.6b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Robotis Co.Ltd you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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