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. We can see that KBC Corporation, Ltd. (SHSE:688598) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is KBC Corporation's Debt?

You can click the graphic below for the historical numbers, but it shows that KBC Corporation had CN¥316.8m of debt in September 2024, down from CN¥477.8m, one year before. However, it does have CN¥1.53b in cash offsetting this, leading to net cash of CN¥1.21b.

How Strong Is KBC Corporation's Balance Sheet?

We can see from the most recent balance sheet that KBC Corporation had liabilities of CN¥512.9m falling due within a year, and liabilities of CN¥352.9m due beyond that. On the other hand, it had cash of CN¥1.53b and CN¥613.5m worth of receivables due within a year. So it actually has CN¥1.28b more liquid assets than total liabilities.

It's good to see that KBC Corporation has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that KBC Corporation has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if KBC Corporation can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year KBC Corporation had a loss before interest and tax, and actually shrunk its revenue by 46%, to CN¥634m. That makes us nervous, to say the least.

So How Risky Is KBC Corporation?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that KBC Corporation had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥822m of cash and made a loss of CN¥255m. Given it only has net cash of CN¥1.21b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for KBC Corporation you should be aware of.

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.

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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.