Is Union Materials (KRX:047400) A Risky Investment?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Union Materials Corp. (KRX:047400) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Union Materials Carry?

As you can see below, Union Materials had ₩90.5b of debt at June 2025, down from ₩101.2b a year prior. Net debt is about the same, since the it doesn't have much cash.

How Strong Is Union Materials' Balance Sheet?

We can see from the most recent balance sheet that Union Materials had liabilities of ₩97.2b falling due within a year, and liabilities of ₩22.4b due beyond that. On the other hand, it had cash of ₩1.17b and ₩33.2b worth of receivables due within a year. So it has liabilities totalling ₩85.2b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's ₩71.5b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Union Materials'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.

View our latest analysis for Union Materials

Over 12 months, Union Materials made a loss at the EBIT level, and saw its revenue drop to ₩105b, which is a fall of 9.3%. We would much prefer see growth.

Caveat Emptor

Importantly, Union Materials had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩10b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of ₩44b. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Union Materials is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

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.