These 4 Measures Indicate That FIBERPRO (KOSDAQ:368770) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that FIBERPRO, Inc. (KOSDAQ:368770) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 FIBERPRO

How Much Debt Does FIBERPRO Carry?

The chart below, which you can click on for greater detail, shows that FIBERPRO had ₩5.20b in debt in June 2024; about the same as the year before. However, it does have ₩9.22b in cash offsetting this, leading to net cash of ₩4.02b.

A Look At FIBERPRO's Liabilities

The latest balance sheet data shows that FIBERPRO had liabilities of ₩9.00b due within a year, and liabilities of ₩4.09b falling due after that. Offsetting these obligations, it had cash of ₩9.22b as well as receivables valued at ₩8.41b due within 12 months. So it can boast ₩4.53b more liquid assets than total liabilities.

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

Even more impressive was the fact that FIBERPRO grew its EBIT by 116% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if FIBERPRO can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. FIBERPRO 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 last three years, FIBERPRO saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case FIBERPRO has ₩4.02b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 116% over the last year. So we don't have any problem with FIBERPRO's use of debt. 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. For example FIBERPRO has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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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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.