RN2 Technologies (KOSDAQ:148250) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that RN2 Technologies Co., Ltd. (KOSDAQ:148250) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for RN2 Technologies

What Is RN2 Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that RN2 Technologies had ₩8.95b of debt in December 2023, down from ₩13.9b, one year before. But it also has ₩12.9b in cash to offset that, meaning it has ₩3.99b net cash.

How Strong Is RN2 Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RN2 Technologies had liabilities of ₩9.00b due within 12 months and liabilities of ₩1.77b due beyond that. On the other hand, it had cash of ₩12.9b and ₩4.13b worth of receivables due within a year. So it actually has ₩6.30b more liquid assets than total liabilities.

This excess liquidity suggests that RN2 Technologies is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, RN2 Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Over 12 months, RN2 Technologies made a loss at the EBIT level, and saw its revenue drop to ₩15b, which is a fall of 37%. That makes us nervous, to say the least.

So How Risky Is RN2 Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year RN2 Technologies had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩1.1b and booked a ₩660m accounting loss. With only ₩3.99b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that RN2 Technologies is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.