RYUK-IL C&S (KOSDAQ:191410) 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.' 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 note that RYUK-IL C&S., Ltd (KOSDAQ:191410) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for RYUK-IL C&S

What Is RYUK-IL C&S's Debt?

The image below, which you can click on for greater detail, shows that at September 2020 RYUK-IL C&S had debt of ₩46.2b, up from ₩40.3b in one year. However, it also had ₩5.48b in cash, and so its net debt is ₩40.7b.

How Strong Is RYUK-IL C&S' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RYUK-IL C&S had liabilities of ₩65.0b due within 12 months and liabilities of ₩2.91b due beyond that. Offsetting this, it had ₩5.48b in cash and ₩13.6b in receivables that were due within 12 months. So its liabilities total ₩48.8b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩30.0b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, RYUK-IL C&S would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is RYUK-IL C&S'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.

Over 12 months, RYUK-IL C&S saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months RYUK-IL C&S produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩10b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩10b over the last twelve months. That means it's on the risky side of things. 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 4 warning signs for RYUK-IL C&S you should be aware of, and 2 of them make us uncomfortable.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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.
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