Is Smart Radar System (KOSDAQ:424960) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Smart Radar System Inc. (KOSDAQ:424960) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Smart Radar System

What Is Smart Radar System's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Smart Radar System had ₩7.22b of debt, an increase on ₩2.70b, over one year. But it also has ₩22.8b in cash to offset that, meaning it has ₩15.5b net cash.

A Look At Smart Radar System's Liabilities

Zooming in on the latest balance sheet data, we can see that Smart Radar System had liabilities of ₩13.3b due within 12 months and liabilities of ₩272.3m due beyond that. On the other hand, it had cash of ₩22.8b and ₩1.76b worth of receivables due within a year. So it can boast ₩11.0b 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! There's no doubt that we learn most about debt from the balance sheet. 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.

Over 12 months, Smart Radar System reported revenue of ₩5.2b, which is a gain of 17%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Smart Radar System?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Smart Radar System lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩6.4b of cash and made a loss of ₩4.9b. While this does make the company a bit risky, it's important to remember it has net cash of ₩15.5b. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Case in point: We've spotted 3 warning signs for Smart Radar System you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.