Does VINA TECHLtd (KOSDAQ:126340) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that VINA TECH Co.,Ltd. (KOSDAQ:126340) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for VINA TECHLtd

How Much Debt Does VINA TECHLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2024 VINA TECHLtd had debt of ₩88.0b, up from ₩62.0b in one year. On the flip side, it has ₩29.8b in cash leading to net debt of about ₩58.2b.

How Strong Is VINA TECHLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that VINA TECHLtd had liabilities of ₩61.2b due within 12 months and liabilities of ₩36.0b due beyond that. Offsetting these obligations, it had cash of ₩29.8b as well as receivables valued at ₩22.0b due within 12 months. So it has liabilities totalling ₩45.4b more than its cash and near-term receivables, combined.

VINA TECHLtd has a market capitalization of ₩178.8b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine VINA TECHLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year VINA TECHLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 2.5%, to ₩60b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, VINA TECHLtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩443m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩45b of cash over the last year. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for VINA TECHLtd (of which 1 is a bit concerning!) 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. 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.