Does Sungdo Engineering & Construction (KOSDAQ:037350) Have A 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.' 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 can see that Sungdo Engineering & Construction Co., Ltd. (KOSDAQ:037350) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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.

What Is Sungdo Engineering & Construction's Debt?

As you can see below, Sungdo Engineering & Construction had ₩84.0b of debt at June 2025, down from ₩110.1b a year prior. But on the other hand it also has ₩126.8b in cash, leading to a ₩42.9b net cash position.

A Look At Sungdo Engineering & Construction's Liabilities

The latest balance sheet data shows that Sungdo Engineering & Construction had liabilities of ₩226.6b due within a year, and liabilities of ₩108.6b falling due after that. On the other hand, it had cash of ₩126.8b and ₩92.6b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩115.7b.

This deficit casts a shadow over the ₩75.0b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Sungdo Engineering & Construction would likely require a major re-capitalisation if it had to pay its creditors today. Given that Sungdo Engineering & Construction has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

See our latest analysis for Sungdo Engineering & Construction

In fact Sungdo Engineering & Construction's saving grace is its low debt levels, because its EBIT has tanked 40% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sungdo Engineering & Construction 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. While Sungdo Engineering & Construction has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Sungdo Engineering & Construction actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Sungdo Engineering & Construction does have more liabilities than liquid assets, it also has net cash of ₩42.9b. The cherry on top was that in converted 146% of that EBIT to free cash flow, bringing in ₩40b. So although we see some areas for improvement, we're not too worried about Sungdo Engineering & Construction's balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with Sungdo Engineering & Construction , and understanding them should be part of your investment process.

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.

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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.