Some say that volatility, not debt, is the best way to think about risk as an investor, but Warren Buffett once said, “Volatility is far from synonymous with risk.” When we think about how risky a company is, we always like to look at its level of debt, since excessive debt can lead to ruin. We find that RaemongRaein Co., Ltd. (KOSDAQ:200350) has debt on its balance sheet. But is this debt a cause for concern for shareholders?

When is debt a problem?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either through free cash flow or by raising capital at an attractive price. In a worst-case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is that a company must dilute shareholders at a cheap share price just to get debt under control. Of course, many companies use debt to fund growth without suffering negative consequences. When considering how much debt a company has, you should first look at its cash and debt together.

Check out our latest analysis for RaemongRaein

How much is RaemongRaein’s debt?

You can click on the chart below to see the historical numbers, however, it shows that RaemongRaein had ₩4.00 billion in debt as of March 2024, compared to ₩11.2 billion a year earlier. On the other hand, the company also has ₩49.1 billion in cash, resulting in a net cash balance of ₩45.1 billion.

A look at RaemongRaein’s liabilities

According to the last balance sheet, RaemongRaein had liabilities of ₩4.33 billion due within 12 months and liabilities of ₩2.53 billion due beyond 12 months. These liabilities were offset by cash of ₩49.1 billion and receivables valued at ₩3.36 billion due within 12 months. This means that the company has ₩45.6 billion more cash than in total Liabilities.

This excess strongly suggests that RaemongRaein has a rock-solid balance sheet (and debt isn’t a problem at all). With that in mind, you might assume that the balance sheet means the company is able to handle some adversity. Simply put, the fact that RaemongRaein has more cash than debt is arguably a good indication that it can manage its debt safely. There’s no doubt that we learn the most about debt from the balance sheet. But it’s RaemongRaein’s earnings that will influence how the balance sheet performs going forward, so if you’re interested in learning more about earnings, it might be worth looking at this graph of its long term earnings trend.

Last year, RaemongRaein posted a loss before interest and tax and its revenue actually fell 11% to ₩37 billion. We would much rather see growth.

How risky is RaemongRaein?

Statistically, companies that lose money are riskier than those that make money. And the fact is that RaemongRaein lost money on earnings before interest and taxes (EBIT) over the last twelve months. And during the same period, it recorded negative free cash flow of ₩5.3 billion and posted an accounting loss of ₩9.4 billion. But the saving grace is the ₩45.1 billion on the balance sheet. That means the company could continue spending at that rate for more than two years. Overall, its balance sheet doesn’t seem overly risky right now, but we’re always cautious until we see positive free cash flow. There’s no doubt that we learn the most about debt from the balance sheet. But ultimately, every company can contain risks that exist off the balance sheet. Case in point: We discovered 4 warning signs for RaemongRaein You should be aware of these, and two of them are worrying.

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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