YUNSUNG F&CLtd (KOSDAQ:372170) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, YUNSUNG F&C Co.,Ltd (KOSDAQ:372170) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for YUNSUNG F&CLtd

How Much Debt Does YUNSUNG F&CLtd Carry?

The image below, which you can click on for greater detail, shows that YUNSUNG F&CLtd had debt of ₩29.6b at the end of June 2024, a reduction from ₩64.4b over a year. But on the other hand it also has ₩33.9b in cash, leading to a ₩4.35b net cash position.

A Look At YUNSUNG F&CLtd's Liabilities

According to the last reported balance sheet, YUNSUNG F&CLtd had liabilities of ₩137.1b due within 12 months, and liabilities of ₩13.7b due beyond 12 months. On the other hand, it had cash of ₩33.9b and ₩132.5b worth of receivables due within a year. So it actually has ₩15.6b more liquid assets than total liabilities.

This surplus suggests that YUNSUNG F&CLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, YUNSUNG F&CLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, YUNSUNG F&CLtd grew its EBIT by 50% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since YUNSUNG F&CLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While YUNSUNG F&CLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last two years, YUNSUNG F&CLtd burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case YUNSUNG F&CLtd has ₩4.35b in net cash and a decent-looking balance sheet. And we liked the look of last year's 50% year-on-year EBIT growth. So we don't have any problem with YUNSUNG F&CLtd's use of debt. 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. Be aware that YUNSUNG F&CLtd is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.