Daebo MagneticLtd (KOSDAQ:290670) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Daebo Magnetic Co.,Ltd. (KOSDAQ:290670) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

We've discovered 2 warning signs about Daebo MagneticLtd. View them for free.

Why Does Debt Bring Risk?

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

How Much Debt Does Daebo MagneticLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Daebo MagneticLtd had ₩4.00b of debt in December 2024, down from ₩6.00b, one year before. However, it also had ₩2.68b in cash, and so its net debt is ₩1.32b.

How Strong Is Daebo MagneticLtd's Balance Sheet?

The latest balance sheet data shows that Daebo MagneticLtd had liabilities of ₩26.6b due within a year, and liabilities of ₩2.72b falling due after that. On the other hand, it had cash of ₩2.68b and ₩1.56b worth of receivables due within a year. So its liabilities total ₩25.0b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Daebo MagneticLtd is worth ₩97.0b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Carrying virtually no net debt, Daebo MagneticLtd has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Daebo MagneticLtd 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.

Check out our latest analysis for Daebo MagneticLtd

In the last year Daebo MagneticLtd had a loss before interest and tax, and actually shrunk its revenue by 29%, to ₩28b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Daebo MagneticLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₩10.0b 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 ₩4.4b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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 2 warning signs for Daebo MagneticLtd (1 is significant) 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.