RAONTECH (KOSDAQ:418420) Is Making Moderate Use Of Debt

Simply Wall St · 4d ago

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that RAONTECH Inc. (KOSDAQ:418420) does use debt in its business. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does RAONTECH Carry?

As you can see below, RAONTECH had ₩7.33b of debt at December 2024, down from ₩10.8b a year prior. However, it does have ₩5.92b in cash offsetting this, leading to net debt of about ₩1.41b.

debt-equity-history-analysis
KOSDAQ:A418420 Debt to Equity History April 16th 2025

How Strong Is RAONTECH's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RAONTECH had liabilities of ₩3.21b due within 12 months and liabilities of ₩8.82b due beyond that. On the other hand, it had cash of ₩5.92b and ₩2.00b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩4.10b.

Of course, RAONTECH has a market capitalization of ₩83.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is RAONTECH'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.

Check out our latest analysis for RAONTECH

Over 12 months, RAONTECH made a loss at the EBIT level, and saw its revenue drop to ₩8.9b, which is a fall of 17%. We would much prefer see growth.

Caveat Emptor

While RAONTECH's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩7.0b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩5.8b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for RAONTECH (2 are potentially serious) 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.