Is WooriNet (KOSDAQ:115440) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies WooriNet, Inc. (KOSDAQ:115440) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 WooriNet

How Much Debt Does WooriNet Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 WooriNet had ₩20.2b of debt, an increase on ₩7.20b, over one year. But it also has ₩45.3b in cash to offset that, meaning it has ₩25.1b net cash.

How Strong Is WooriNet's Balance Sheet?

We can see from the most recent balance sheet that WooriNet had liabilities of ₩19.9b falling due within a year, and liabilities of ₩20.2b due beyond that. On the other hand, it had cash of ₩45.3b and ₩14.6b worth of receivables due within a year. So it can boast ₩19.8b more liquid assets than total liabilities.

This surplus suggests that WooriNet is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, WooriNet 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 you can't view debt in total isolation; since WooriNet will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year WooriNet had a loss before interest and tax, and actually shrunk its revenue by 29%, to ₩52b. That makes us nervous, to say the least.

So How Risky Is WooriNet?

Although WooriNet had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩4.8b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. For example WooriNet has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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