These 4 Measures Indicate That ATEC MOBILITY (KOSDAQ:224110) Is Using Debt Reasonably Well

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that ATEC MOBILITY Co., Ltd (KOSDAQ:224110) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

How Much Debt Does ATEC MOBILITY Carry?

As you can see below, ATEC MOBILITY had ₩12.0b of debt at December 2024, down from ₩18.3b a year prior. However, its balance sheet shows it holds ₩40.4b in cash, so it actually has ₩28.4b net cash.

How Strong Is ATEC MOBILITY's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ATEC MOBILITY had liabilities of ₩39.5b due within 12 months and liabilities of ₩9.60b due beyond that. Offsetting these obligations, it had cash of ₩40.4b as well as receivables valued at ₩17.8b due within 12 months. So it can boast ₩9.19b more liquid assets than total liabilities.

This short term liquidity is a sign that ATEC MOBILITY could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ATEC MOBILITY boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for ATEC MOBILITY

Fortunately, ATEC MOBILITY grew its EBIT by 5.4% in the last year, making that debt load look even more manageable. 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 ATEC MOBILITY 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ATEC MOBILITY has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, ATEC MOBILITY recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that ATEC MOBILITY has net cash of ₩28.4b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 5.4% in the last twelve months. So is ATEC MOBILITY's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with ATEC MOBILITY (at least 3 which are a bit unpleasant) , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.