Is Mobiis (KOSDAQ:250060) Weighed On By Its Debt Load?

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 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 Mobiis Co., Ltd. (KOSDAQ:250060) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Mobiis

What Is Mobiis's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Mobiis had ₩4.12b of debt, an increase on ₩2.01b, over one year. However, it does have ₩20.9b in cash offsetting this, leading to net cash of ₩16.8b.

A Look At Mobiis' Liabilities

According to the last reported balance sheet, Mobiis had liabilities of ₩11.1b due within 12 months, and liabilities of ₩2.31b due beyond 12 months. Offsetting these obligations, it had cash of ₩20.9b as well as receivables valued at ₩4.50b due within 12 months. So it can boast ₩12.0b more liquid assets than total liabilities.

This surplus suggests that Mobiis has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Mobiis has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Mobiis 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.

In the last year Mobiis wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₩14b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Mobiis?

Although Mobiis had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩2.3b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 Mobiis you should be aware of.

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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