Is NextEye (KOSDAQ:137940) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, NextEye Co., Ltd. (KOSDAQ:137940) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for NextEye

What Is NextEye's Net Debt?

The chart below, which you can click on for greater detail, shows that NextEye had ₩17.4b in debt in June 2024; about the same as the year before. But it also has ₩42.5b in cash to offset that, meaning it has ₩25.0b net cash.

How Healthy Is NextEye's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NextEye had liabilities of ₩49.7b due within 12 months and liabilities of ₩1.24b due beyond that. On the other hand, it had cash of ₩42.5b and ₩2.61b worth of receivables due within a year. So it has liabilities totalling ₩5.84b more than its cash and near-term receivables, combined.

Given NextEye has a market capitalization of ₩36.1b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, NextEye boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is NextEye's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, NextEye reported revenue of ₩47b, which is a gain of 100%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is NextEye?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months NextEye lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩3.6b and booked a ₩15b accounting loss. But the saving grace is the ₩25.0b on the balance sheet. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that NextEye has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for NextEye (1 is potentially serious!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.