Wooree LightingLtd (KOSDAQ:037400) Could Easily Take On More Debt

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 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 Wooree Lighting Co.,Ltd (KOSDAQ:037400) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Wooree LightingLtd

How Much Debt Does Wooree LightingLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Wooree LightingLtd had ₩72.6b of debt in March 2024, down from ₩93.9b, one year before. However, its balance sheet shows it holds ₩151.4b in cash, so it actually has ₩78.8b net cash.

How Strong Is Wooree LightingLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Wooree LightingLtd had liabilities of ₩321.2b due within 12 months and liabilities of ₩40.3b due beyond that. Offsetting these obligations, it had cash of ₩151.4b as well as receivables valued at ₩208.2b due within 12 months. So these liquid assets roughly match the total liabilities.

Of course, Wooree LightingLtd has a market capitalization of ₩37.4b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Wooree LightingLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Wooree LightingLtd grew its EBIT at 14% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Wooree LightingLtd 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. Wooree LightingLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Wooree LightingLtd generated free cash flow amounting to a very robust 83% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

We could understand if investors are concerned about Wooree LightingLtd's liabilities, but we can be reassured by the fact it has has net cash of ₩78.8b. And it impressed us with free cash flow of ₩43b, being 83% of its EBIT. So is Wooree LightingLtd's debt a risk? It doesn't seem so to us. 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 1 warning sign for Wooree LightingLtd that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

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