Would CoAsia CMLtd (KOSDAQ:196450) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, CoAsia CM Co.,Ltd (KOSDAQ:196450) does carry debt. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is CoAsia CMLtd's Net Debt?

The image below, which you can click on for greater detail, shows that CoAsia CMLtd had debt of ₩40.8b at the end of June 2025, a reduction from ₩56.7b over a year. However, it does have ₩32.2b in cash offsetting this, leading to net debt of about ₩8.62b.

A Look At CoAsia CMLtd's Liabilities

The latest balance sheet data shows that CoAsia CMLtd had liabilities of ₩65.2b due within a year, and liabilities of ₩3.06b falling due after that. Offsetting these obligations, it had cash of ₩32.2b as well as receivables valued at ₩20.4b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩15.8b.

CoAsia CMLtd has a market capitalization of ₩37.9b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since CoAsia CMLtd 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.

View our latest analysis for CoAsia CMLtd

In the last year CoAsia CMLtd had a loss before interest and tax, and actually shrunk its revenue by 3.9%, to ₩276b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months CoAsia CMLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩1.9b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₩11b into a profit. In the meantime, we consider the stock very risky. 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. We've identified 3 warning signs with CoAsia CMLtd (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.