Is Sangji Construction (KOSDAQ:042940) Using Too Much Debt?

Warren Buffett famously said, '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 Sangji Construction, Inc. (KOSDAQ:042940) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Sangji Construction's Net Debt?

As you can see below, at the end of June 2025, Sangji Construction had ₩89.5b of debt, up from ₩62.6b a year ago. Click the image for more detail. On the flip side, it has ₩27.0b in cash leading to net debt of about ₩62.5b.

How Healthy Is Sangji Construction's Balance Sheet?

We can see from the most recent balance sheet that Sangji Construction had liabilities of ₩90.3b falling due within a year, and liabilities of ₩13.3b due beyond that. Offsetting this, it had ₩27.0b in cash and ₩46.0b in receivables that were due within 12 months. So it has liabilities totalling ₩30.7b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Sangji Construction has a market capitalization of ₩70.7b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Sangji Construction'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.

View our latest analysis for Sangji Construction

In the last year Sangji Construction had a loss before interest and tax, and actually shrunk its revenue by 90%, to ₩8.4b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Sangji Construction's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₩18b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩21b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For instance, we've identified 4 warning signs for Sangji Construction (3 are potentially serious) you should be aware of.

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.