Health Check: How Prudently Does Smart Radar System (KOSDAQ:424960) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Smart Radar System Inc. (KOSDAQ:424960) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Smart Radar System

How Much Debt Does Smart Radar System Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Smart Radar System had ₩6.97b of debt, an increase on ₩2.70b, over one year. But it also has ₩26.7b in cash to offset that, meaning it has ₩19.7b net cash.

How Healthy Is Smart Radar System's Balance Sheet?

The latest balance sheet data shows that Smart Radar System had liabilities of ₩13.1b due within a year, and liabilities of ₩324.3m falling due after that. On the other hand, it had cash of ₩26.7b and ₩1.85b worth of receivables due within a year. So it can boast ₩15.2b more liquid assets than total liabilities.

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

In the last year Smart Radar System wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to ₩5.3b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Smart Radar System?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Smart Radar System had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩5.8b of cash and made a loss of ₩4.3b. But the saving grace is the ₩19.7b on the balance sheet. That means it could keep spending at its current rate for more than two years. Smart Radar System's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Smart Radar System 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.