CAMUS ENGINEERING & CONSTRUCTION (KRX:013700) Is Making Moderate Use Of Debt

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.' 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. Importantly, CAMUS ENGINEERING & CONSTRUCTION Inc. (KRX:013700) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for CAMUS ENGINEERING & CONSTRUCTION

How Much Debt Does CAMUS ENGINEERING & CONSTRUCTION Carry?

The image below, which you can click on for greater detail, shows that at September 2024 CAMUS ENGINEERING & CONSTRUCTION had debt of ₩84.4b, up from ₩67.9b in one year. However, because it has a cash reserve of ₩14.9b, its net debt is less, at about ₩69.5b.

How Strong Is CAMUS ENGINEERING & CONSTRUCTION's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CAMUS ENGINEERING & CONSTRUCTION had liabilities of ₩128.5b due within 12 months and liabilities of ₩39.4b due beyond that. Offsetting these obligations, it had cash of ₩14.9b as well as receivables valued at ₩71.9b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩81.2b.

This is a mountain of leverage relative to its market capitalization of ₩102.4b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since CAMUS ENGINEERING & CONSTRUCTION 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.

Over 12 months, CAMUS ENGINEERING & CONSTRUCTION reported revenue of ₩275b, which is a gain of 6.9%, 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, CAMUS ENGINEERING & CONSTRUCTION had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩1.8b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩36b in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for CAMUS ENGINEERING & CONSTRUCTION (of which 1 is potentially serious!) you should know about.

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.