MDS Tech (KOSDAQ:086960) Seems To Use Debt Rather Sparingly
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, MDS Tech Inc. (KOSDAQ:086960) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is MDS Tech's Debt?
As you can see below, at the end of June 2025, MDS Tech had ₩21.0b of debt, up from ₩7.06b a year ago. Click the image for more detail. But on the other hand it also has ₩91.2b in cash, leading to a ₩70.2b net cash position.
How Strong Is MDS Tech's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that MDS Tech had liabilities of ₩91.8b due within 12 months and liabilities of ₩5.96b due beyond that. Offsetting these obligations, it had cash of ₩91.2b as well as receivables valued at ₩27.1b due within 12 months. So it actually has ₩20.5b more liquid assets than total liabilities.
It's good to see that MDS Tech has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that MDS Tech has more cash than debt is arguably a good indication that it can manage its debt safely.
Check out our latest analysis for MDS Tech
On the other hand, MDS Tech saw its EBIT drop by 8.7% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But it is MDS Tech'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.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While MDS Tech has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, MDS Tech actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.
Summing Up
While it is always sensible to investigate a company's debt, in this case MDS Tech has ₩70.2b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 198% of that EBIT to free cash flow, bringing in ₩14b. So is MDS Tech's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 3 warning signs for MDS Tech that you should be aware of before investing here.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.