Is SungEel HiTech (KOSDAQ:365340) Using Debt Sensibly?

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 SungEel HiTech Co., Ltd. (KOSDAQ:365340) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is SungEel HiTech's Debt?

As you can see below, at the end of March 2025, SungEel HiTech had ₩432.4b of debt, up from ₩258.5b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩38.0b, its net debt is less, at about ₩394.3b.

How Healthy Is SungEel HiTech's Balance Sheet?

We can see from the most recent balance sheet that SungEel HiTech had liabilities of ₩296.4b falling due within a year, and liabilities of ₩200.8b due beyond that. Offsetting this, it had ₩38.0b in cash and ₩18.9b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩440.4b.

This is a mountain of leverage relative to its market capitalization of ₩479.3b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SungEel HiTech's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for SungEel HiTech

In the last year SungEel HiTech had a loss before interest and tax, and actually shrunk its revenue by 32%, to ₩136b. To be frank that doesn't bode well.

Caveat Emptor

While SungEel HiTech'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 a very considerable ₩74b at the EBIT level. 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 ₩215b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like SungEel HiTech I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.