DAVOLINK (KOSDAQ:340360) Is Making Moderate Use Of Debt

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.' 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 DAVOLINK Inc. (KOSDAQ:340360) makes use of debt. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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 DAVOLINK Carry?

As you can see below, at the end of March 2025, DAVOLINK had ₩26.2b of debt, up from ₩9.54b a year ago. Click the image for more detail. However, it does have ₩10.8b in cash offsetting this, leading to net debt of about ₩15.4b.

A Look At DAVOLINK's Liabilities

We can see from the most recent balance sheet that DAVOLINK had liabilities of ₩36.0b falling due within a year, and liabilities of ₩310.9m due beyond that. On the other hand, it had cash of ₩10.8b and ₩15.4b worth of receivables due within a year. So it has liabilities totalling ₩10.1b more than its cash and near-term receivables, combined.

Given DAVOLINK has a market capitalization of ₩72.3b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 DAVOLINK 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.

View our latest analysis for DAVOLINK

Over 12 months, DAVOLINK made a loss at the EBIT level, and saw its revenue drop to ₩62b, which is a fall of 18%. We would much prefer see growth.

Caveat Emptor

Not only did DAVOLINK's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₩4.7b at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩2.4b of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for DAVOLINK that you should be aware of.

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.

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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.