Does ONEJOON (KOSDAQ:382840) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that ONEJOON Co., Ltd. (KOSDAQ:382840) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for ONEJOON

How Much Debt Does ONEJOON Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 ONEJOON had ₩12.5b of debt, an increase on ₩4.50b, over one year. But on the other hand it also has ₩48.3b in cash, leading to a ₩35.8b net cash position.

How Strong Is ONEJOON's Balance Sheet?

We can see from the most recent balance sheet that ONEJOON had liabilities of ₩107.7b falling due within a year, and liabilities of ₩2.76b due beyond that. On the other hand, it had cash of ₩48.3b and ₩24.5b worth of receivables due within a year. So its liabilities total ₩37.6b more than the combination of its cash and short-term receivables.

ONEJOON has a market capitalization of ₩152.8b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, ONEJOON also has more cash than debt, so we're pretty confident it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, ONEJOON turned things around in the last 12 months, delivering and EBIT of ₩26b. When analysing debt levels, the balance sheet is the obvious place to start. But it is ONEJOON'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While ONEJOON 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. Over the last year, ONEJOON recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

Although ONEJOON's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩35.8b. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in ₩24b. So we don't think ONEJOON's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with ONEJOON .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.