OptiCore (KOSDAQ:380540) Is Carrying A Fair Bit 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. We can see that OptiCore Inc. (KOSDAQ:380540) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for OptiCore

What Is OptiCore's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 OptiCore had debt of ₩13.4b, up from ₩8.60b in one year. On the flip side, it has ₩9.92b in cash leading to net debt of about ₩3.49b.

How Strong Is OptiCore's Balance Sheet?

We can see from the most recent balance sheet that OptiCore had liabilities of ₩19.2b falling due within a year, and liabilities of ₩5.53b due beyond that. Offsetting this, it had ₩9.92b in cash and ₩3.40b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩11.4b.

This deficit isn't so bad because OptiCore is worth ₩38.6b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since OptiCore 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 OptiCore wasn't profitable at an EBIT level, but managed to grow its revenue by 4.5%, to ₩25b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months OptiCore produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₩5.7b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 ₩3.3b of cash over the last year. So suffice it to say we consider the stock very 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. Case in point: We've spotted 3 warning signs for OptiCore 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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