Is RN2 Technologies (KOSDAQ:148250) Using Debt Sensibly?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies RN2 Technologies Co., Ltd. (KOSDAQ:148250) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for RN2 Technologies

How Much Debt Does RN2 Technologies Carry?

The image below, which you can click on for greater detail, shows that RN2 Technologies had debt of ₩8.52b at the end of September 2024, a reduction from ₩9.30b over a year. However, it does have ₩13.8b in cash offsetting this, leading to net cash of ₩5.23b.

How Strong Is RN2 Technologies' Balance Sheet?

We can see from the most recent balance sheet that RN2 Technologies had liabilities of ₩9.23b falling due within a year, and liabilities of ₩516.3m due beyond that. Offsetting these obligations, it had cash of ₩13.8b as well as receivables valued at ₩4.26b due within 12 months. So it actually has ₩8.26b more liquid assets than total liabilities.

This surplus strongly suggests that RN2 Technologies 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. Succinctly put, RN2 Technologies 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 it is RN2 Technologies'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.

In the last year RN2 Technologies had a loss before interest and tax, and actually shrunk its revenue by 18%, to ₩14b. That's not what we would hope to see.

So How Risky Is RN2 Technologies?

While RN2 Technologies lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩1.6b. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for RN2 Technologies (1 doesn't sit too well with us) you should be aware of.

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.