Tuksu Engineering & ConstructionLtd (KOSDAQ:026150) Takes On Some Risk With Its Use Of Debt

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. We note that Tuksu Engineering & Construction,Ltd. (KOSDAQ:026150) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Tuksu Engineering & ConstructionLtd's Net Debt?

As you can see below, Tuksu Engineering & ConstructionLtd had ₩34.6b of debt at September 2025, down from ₩48.7b a year prior. However, it does have ₩27.4b in cash offsetting this, leading to net debt of about ₩7.22b.

A Look At Tuksu Engineering & ConstructionLtd's Liabilities

The latest balance sheet data shows that Tuksu Engineering & ConstructionLtd had liabilities of ₩77.9b due within a year, and liabilities of ₩25.2b falling due after that. On the other hand, it had cash of ₩27.4b and ₩73.6b worth of receivables due within a year. So its liabilities total ₩2.13b more than the combination of its cash and short-term receivables.

This state of affairs indicates that Tuksu Engineering & ConstructionLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩109.7b company is struggling for cash, we still think it's worth monitoring its balance sheet.

Check out our latest analysis for Tuksu Engineering & ConstructionLtd

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Given net debt is only 0.41 times EBITDA, it is initially surprising to see that Tuksu Engineering & ConstructionLtd's EBIT has low interest coverage of 0.96 times. So one way or the other, it's clear the debt levels are not trivial. Importantly, Tuksu Engineering & ConstructionLtd's EBIT fell a jaw-dropping 67% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Tuksu Engineering & ConstructionLtd 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Tuksu Engineering & ConstructionLtd saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

To be frank both Tuksu Engineering & ConstructionLtd's conversion of EBIT to free cash flow and its track record of (not) growing its EBIT make us rather uncomfortable with its debt levels. But at least it's pretty decent at managing its debt, based on its EBITDA,; that's encouraging. Once we consider all the factors above, together, it seems to us that Tuksu Engineering & ConstructionLtd's debt is making it a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Tuksu Engineering & ConstructionLtd (1 is significant!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.