Health Check: How Prudently Does Wonik Pne (KOSDAQ:217820) Use 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Wonik Pne Co., Ltd. (KOSDAQ:217820) makes use of debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Wonik Pne Carry?

As you can see below, at the end of March 2025, Wonik Pne had ₩146.2b of debt, up from ₩120.2b a year ago. Click the image for more detail. However, it does have ₩14.9b in cash offsetting this, leading to net debt of about ₩131.2b.

How Strong Is Wonik Pne's Balance Sheet?

According to the last reported balance sheet, Wonik Pne had liabilities of ₩352.5b due within 12 months, and liabilities of ₩2.38b due beyond 12 months. Offsetting these obligations, it had cash of ₩14.9b as well as receivables valued at -₩380 due within 12 months. So it has liabilities totalling ₩339.9b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₩137.4b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Wonik Pne would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Wonik Pne'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.

Check out our latest analysis for Wonik Pne

Over 12 months, Wonik Pne reported revenue of ₩376b, which is a gain of 3.9%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Wonik Pne had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩16b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩14b over the last twelve months. So suffice it to say we consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Wonik Pne (of which 2 make us uncomfortable!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.