Health Check: How Prudently Does Daechang Solution (KOSDAQ:096350) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Daechang Solution Co., Ltd. (KOSDAQ:096350) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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 Daechang Solution's Debt?

As you can see below, at the end of June 2025, Daechang Solution had ₩70.9b of debt, up from ₩63.0b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩11.8b, its net debt is less, at about ₩59.2b.

How Strong Is Daechang Solution's Balance Sheet?

We can see from the most recent balance sheet that Daechang Solution had liabilities of ₩74.1b falling due within a year, and liabilities of ₩28.8b due beyond that. Offsetting these obligations, it had cash of ₩11.8b as well as receivables valued at ₩11.6b due within 12 months. So its liabilities total ₩79.6b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₩86.6b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Daechang Solution 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.

View our latest analysis for Daechang Solution

In the last year Daechang Solution had a loss before interest and tax, and actually shrunk its revenue by 15%, to ₩56b. That's not what we would hope to see.

Caveat Emptor

Not only did Daechang Solution's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₩2.1b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩5.3b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Daechang Solution you should know about.

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.