Is Dongkuk Structures & Construction (KOSDAQ:100130) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Dongkuk Structures & Construction Company Limited (KOSDAQ:100130) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Dongkuk Structures & Construction's Net Debt?

The image below, which you can click on for greater detail, shows that Dongkuk Structures & Construction had debt of ₩70.9b at the end of December 2024, a reduction from ₩139.4b over a year. However, because it has a cash reserve of ₩23.5b, its net debt is less, at about ₩47.4b.

A Look At Dongkuk Structures & Construction's Liabilities

We can see from the most recent balance sheet that Dongkuk Structures & Construction had liabilities of ₩123.3b falling due within a year, and liabilities of ₩21.4m due beyond that. On the other hand, it had cash of ₩23.5b and ₩51.8b worth of receivables due within a year. So its liabilities total ₩48.0b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Dongkuk Structures & Construction has a market capitalization of ₩146.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Dongkuk Structures & Construction's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Dongkuk Structures & Construction

In the last year Dongkuk Structures & Construction had a loss before interest and tax, and actually shrunk its revenue by 7.2%, to ₩166b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Dongkuk Structures & Construction produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩24b. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩30b in negative free cash flow over the last twelve months. So in short it's a really risky stock. For riskier companies like Dongkuk Structures & Construction I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.