sindohLtd (KRX:029530) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies sindoh Co.,Ltd. (KRX:029530) makes use of debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for sindohLtd

What Is sindohLtd's Debt?

The image below, which you can click on for greater detail, shows that sindohLtd had debt of ₩7.83b at the end of December 2020, a reduction from ₩8.92b over a year. However, its balance sheet shows it holds ₩626.6b in cash, so it actually has ₩618.8b net cash.

How Healthy Is sindohLtd's Balance Sheet?

The latest balance sheet data shows that sindohLtd had liabilities of ₩57.3b due within a year, and liabilities of ₩10.4b falling due after that. Offsetting these obligations, it had cash of ₩626.6b as well as receivables valued at ₩55.1b due within 12 months. So it can boast ₩614.1b more liquid assets than total liabilities.

This surplus liquidity suggests that sindohLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, sindohLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is sindohLtd's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, sindohLtd made a loss at the EBIT level, and saw its revenue drop to ₩336b, which is a fall of 21%. To be frank that doesn't bode well.

So How Risky Is sindohLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year sindohLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩10b of cash and made a loss of ₩13b. Given it only has net cash of ₩618.8b, the company may need to raise more capital if it doesn't reach break-even soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with sindohLtd (including 1 which makes us a bit uncomfortable) .

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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