Is Seoul Viosys (KOSDAQ:092190) Using Too Much Debt?

Simply Wall St · 10/15 21:45

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Seoul Viosys Co., Ltd (KOSDAQ:092190) does carry debt. 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, 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 Seoul Viosys

How Much Debt Does Seoul Viosys Carry?

You can click the graphic below for the historical numbers, but it shows that Seoul Viosys had ₩300.2b of debt in June 2024, down from ₩354.9b, one year before. However, it also had ₩40.8b in cash, and so its net debt is ₩259.4b.

debt-equity-history-analysis
KOSDAQ:A092190 Debt to Equity History October 15th 2024

A Look At Seoul Viosys' Liabilities

Zooming in on the latest balance sheet data, we can see that Seoul Viosys had liabilities of ₩531.4b due within 12 months and liabilities of ₩150.5b due beyond that. On the other hand, it had cash of ₩40.8b and ₩148.6b worth of receivables due within a year. So its liabilities total ₩492.6b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩195.6b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Seoul Viosys would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Seoul Viosys's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Seoul Viosys reported revenue of ₩608b, which is a gain of 33%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Seoul Viosys's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping ₩36b. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost ₩29b in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Seoul Viosys (1 can't be ignored) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.