Does NEOOTO (KOSDAQ:212560) Have A Healthy Balance Sheet?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies NEOOTO CO., Ltd (KOSDAQ:212560) makes use of debt. But should shareholders be worried about its use of debt?
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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does NEOOTO Carry?
As you can see below, NEOOTO had ₩13.2b of debt at September 2025, down from ₩27.0b a year prior. But it also has ₩39.2b in cash to offset that, meaning it has ₩26.0b net cash.
How Healthy Is NEOOTO's Balance Sheet?
We can see from the most recent balance sheet that NEOOTO had liabilities of ₩66.5b falling due within a year, and liabilities of ₩4.06b due beyond that. Offsetting these obligations, it had cash of ₩39.2b as well as receivables valued at ₩33.7b due within 12 months. So it actually has ₩2.34b more liquid assets than total liabilities.
This state of affairs indicates that NEOOTO's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩135.8b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, NEOOTO boasts net cash, so it's fair to say it does not have a heavy debt load!
View our latest analysis for NEOOTO
The good news is that NEOOTO has increased its EBIT by 7.1% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is NEOOTO'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.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. NEOOTO may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, NEOOTO recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that NEOOTO has net cash of ₩26.0b, as well as more liquid assets than liabilities. The cherry on top was that in converted 84% of that EBIT to free cash flow, bringing in -₩14b. So is NEOOTO's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for NEOOTO you should be aware of, and 2 of them are a bit unpleasant.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.