Is Shin Heung Energy & ElectronicsLtd (KOSDAQ:243840) Using Debt Sensibly?

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. We can see that Shin Heung Energy & Electronics Co.,Ltd. (KOSDAQ:243840) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Shin Heung Energy & ElectronicsLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Shin Heung Energy & ElectronicsLtd had ₩457.2b of debt, an increase on ₩406.6b, over one year. On the flip side, it has ₩116.5b in cash leading to net debt of about ₩340.7b.

How Strong Is Shin Heung Energy & ElectronicsLtd's Balance Sheet?

The latest balance sheet data shows that Shin Heung Energy & ElectronicsLtd had liabilities of ₩296.8b due within a year, and liabilities of ₩229.8b falling due after that. Offsetting this, it had ₩116.5b in cash and ₩36.0b in receivables that were due within 12 months. So its liabilities total ₩374.0b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩234.0b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Shin Heung Energy & ElectronicsLtd would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shin Heung Energy & ElectronicsLtd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Shin Heung Energy & ElectronicsLtd

In the last year Shin Heung Energy & ElectronicsLtd had a loss before interest and tax, and actually shrunk its revenue by 32%, to ₩377b. That makes us nervous, to say the least.

Caveat Emptor

While Shin Heung Energy & ElectronicsLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩5.6b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of ₩6.5b over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Shin Heung Energy & ElectronicsLtd (2 shouldn't be ignored) 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.