Is Wireless Power Amplifier Module (KOSDAQ:332570) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Wireless Power Amplifier Module Inc. (KOSDAQ:332570) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Wireless Power Amplifier Module

What Is Wireless Power Amplifier Module's Debt?

As you can see below, Wireless Power Amplifier Module had ₩24.8b of debt at March 2024, down from ₩28.2b a year prior. But it also has ₩79.0b in cash to offset that, meaning it has ₩54.2b net cash.

How Strong Is Wireless Power Amplifier Module's Balance Sheet?

The latest balance sheet data shows that Wireless Power Amplifier Module had liabilities of ₩53.3b due within a year, and liabilities of ₩5.12b falling due after that. On the other hand, it had cash of ₩79.0b and ₩14.6b worth of receivables due within a year. So it actually has ₩35.2b more liquid assets than total liabilities.

This surplus liquidity suggests that Wireless Power Amplifier Module's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Wireless Power Amplifier Module boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, Wireless Power Amplifier Module's EBIT launched higher than Elon Musk, gaining a whopping 138% on last year. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Wireless Power Amplifier Module will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Wireless Power Amplifier Module may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Wireless Power Amplifier Module recorded free cash flow worth 68% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Wireless Power Amplifier Module has net cash of ₩54.2b, as well as more liquid assets than liabilities. And we liked the look of last year's 138% year-on-year EBIT growth. So is Wireless Power Amplifier Module's debt a risk? It doesn't seem so to us. 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 Wireless Power Amplifier Module , 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.

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