Here's Why Sjg SejongLtd (KRX:033530) Has A Meaningful Debt Burden

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Sjg Sejong Co.,Ltd (KRX:033530) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Sjg SejongLtd Carry?

As you can see below, Sjg SejongLtd had ₩272.8b of debt at March 2025, down from ₩284.6b a year prior. However, it also had ₩222.3b in cash, and so its net debt is ₩50.5b.

How Strong Is Sjg SejongLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sjg SejongLtd had liabilities of ₩727.1b due within 12 months and liabilities of ₩114.7b due beyond that. On the other hand, it had cash of ₩222.3b and ₩295.7b worth of receivables due within a year. So its liabilities total ₩323.8b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩132.2b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Sjg SejongLtd would probably need a major re-capitalization if its creditors were to demand repayment.

View our latest analysis for Sjg SejongLtd

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

With net debt sitting at just 0.40 times EBITDA, Sjg SejongLtd is arguably pretty conservatively geared. And it boasts interest cover of 8.3 times, which is more than adequate. In addition to that, we're happy to report that Sjg SejongLtd has boosted its EBIT by 73%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is Sjg SejongLtd's earnings that will influence how the balance sheet holds up in the future. 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. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, Sjg SejongLtd's free cash flow amounted to 34% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Our View

We feel some trepidation about Sjg SejongLtd's difficulty level of total liabilities, but we've got positives to focus on, too. To wit both its EBIT growth rate and net debt to EBITDA were encouraging signs. When we consider all the factors discussed, it seems to us that Sjg SejongLtd is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. 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. For example, we've discovered 2 warning signs for Sjg SejongLtd that you should be aware of before investing here.

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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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.