Codes Combine (KOSDAQ:047770) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Codes Combine Co., Ltd. (KOSDAQ:047770) does carry debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Codes Combine's Debt?

As you can see below, at the end of September 2025, Codes Combine had ₩9.74b of debt, up from ₩5.80b a year ago. Click the image for more detail. But on the other hand it also has ₩36.4b in cash, leading to a ₩26.7b net cash position.

How Healthy Is Codes Combine's Balance Sheet?

The latest balance sheet data shows that Codes Combine had liabilities of ₩15.4b due within a year, and liabilities of ₩7.97b falling due after that. On the other hand, it had cash of ₩36.4b and ₩4.15b worth of receivables due within a year. So it actually has ₩17.2b more liquid assets than total liabilities.

This short term liquidity is a sign that Codes Combine could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Codes Combine boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Codes Combine

It is just as well that Codes Combine's load is not too heavy, because its EBIT was down 21% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Codes Combine will need earnings to service that debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Codes Combine 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, Codes Combine actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Codes Combine has ₩26.7b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩3.2b, being 109% of its EBIT. So we are not troubled with Codes Combine's debt use. 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. Case in point: We've spotted 4 warning signs for Codes Combine you should be aware of, and 2 of them can't be ignored.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.