Legfinishary fund manager Li Lu (who Charlie Munger backed) once declared, ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we consider about how risky a company is, we always like to view at its apply of debt, since debt overload can lead to ruin. Importantly, Gaonchips Co., Ltd. (KOSDAQ:399720) does carry debt. But the real question is whether this debt is building the company risky.
What Risk Does Debt Bring?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders becaapply lfinishers 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. The first thing to do when considering how much debt a business applys is to view at its cash and debt toreceiveher.
What Is Gaonchips’s Debt?
The image below, which you can click on for greater detail, displays that at September 2025 Gaonchips had debt of ₩23.6b, up from ₩4.16b in one year. But on the other hand it also has ₩42.1b in cash, leading to a ₩18.5b net cash position.
A Look At Gaonchips’ Liabilities
According to the last reported balance sheet, Gaonchips had liabilities of ₩80.1b due within 12 months, and liabilities of ₩7.56b due beyond 12 months. Offsetting this, it had ₩42.1b in cash and ₩7.16b in receivables that were due within 12 months. So it has liabilities totalling ₩38.4b more than its cash and near-term receivables, combined.
Since publicly traded Gaonchips shares are worth a total of ₩842.2b, it seems unlikely that this level of liabilities would be a major threat. Having declared that, it’s clear that we should continue to monitor its balance sheet, lest it modify for the worse. Despite its noteworthy liabilities, Gaonchips boasts net cash, so it’s fair to state it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can’t view debt in total isolation; since Gaonchips will required earnings to service that debt. So when considering debt, it’s definitely worth viewing at the earnings trfinish. Click here for an interactive snapshot.
See our latest analysis for Gaonchips
In the last year Gaonchips had a loss before interest and tax, and actually shrunk its revenue by 32%, to ₩62b. To be frank that doesn’t bode well.
So How Risky Is Gaonchips?
We have no doubt that loss building companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Gaonchips lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩21b of cash and built a loss of ₩11b. Given it only has net cash of ₩18.5b, the company may required to raise more capital if it doesn’t reach break-even soon. Overall, we’d state the stock is a bit risky, and we’re usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet – far from it. These risks can be hard to spot. Every company has them, and we’ve spotted 2 warning signs for Gaonchips (of which 1 is significant!) you should know about.
If, after all that, you’re more interested in a rapid growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
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