These 4 Measures Indicate That Intelligent Digital Integrated Security (KOSDAQ:143160) Is Using Debt Safely

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Intelligent Digital Integrated Security Co., Ltd. (KOSDAQ:143160) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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. 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 Intelligent Digital Integrated Security

What Is Intelligent Digital Integrated Security's Debt?

You can click the graphic below for the historical numbers, but it shows that Intelligent Digital Integrated Security had ₩30.0b of debt in September 2024, down from ₩35.0b, one year before. However, its balance sheet shows it holds ₩162.2b in cash, so it actually has ₩132.2b net cash.

How Healthy Is Intelligent Digital Integrated Security's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Intelligent Digital Integrated Security had liabilities of ₩82.5b due within 12 months and liabilities of ₩10.9b due beyond that. Offsetting this, it had ₩162.2b in cash and ₩53.5b in receivables that were due within 12 months. So it actually has ₩122.4b more liquid assets than total liabilities.

This surplus strongly suggests that Intelligent Digital Integrated Security has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Intelligent Digital Integrated Security has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Intelligent Digital Integrated Security's load is not too heavy, because its EBIT was down 32% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Intelligent Digital Integrated Security 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Intelligent Digital Integrated Security has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Intelligent Digital Integrated Security actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Intelligent Digital Integrated Security has ₩132.2b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩31b, being 108% of its EBIT. So we don't think Intelligent Digital Integrated Security's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Intelligent Digital Integrated Security's earnings per share history for free.

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.