Is UTI (KOSDAQ:179900) Using Too Much Debt?

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. We can see that UTI Inc. (KOSDAQ:179900) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is UTI's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 UTI had debt of ₩31.0b, up from ₩14.7b in one year. But on the other hand it also has ₩63.2b in cash, leading to a ₩32.3b net cash position.

How Strong Is UTI's Balance Sheet?

We can see from the most recent balance sheet that UTI had liabilities of ₩58.7b falling due within a year, and liabilities of ₩24.9b due beyond that. Offsetting this, it had ₩63.2b in cash and ₩7.56b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩12.7b.

Since publicly traded UTI shares are worth a total of ₩312.3b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, UTI also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is UTI's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

See our latest analysis for UTI

Over 12 months, UTI made a loss at the EBIT level, and saw its revenue drop to ₩19b, which is a fall of 4.1%. We would much prefer see growth.

So How Risky Is UTI?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that UTI had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩47b and booked a ₩23b accounting loss. But at least it has ₩32.3b on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for UTI you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.