LK Samyang (KOSDAQ:225190) Is Carrying A Fair Bit 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.' 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. Importantly, LK Samyang Co., Ltd (KOSDAQ:225190) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is LK Samyang's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 LK Samyang had ₩5.18b of debt, an increase on none, over one year. However, because it has a cash reserve of ₩1.02b, its net debt is less, at about ₩4.15b.

How Healthy Is LK Samyang's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that LK Samyang had liabilities of ₩9.34b due within 12 months and liabilities of ₩6.18b due beyond that. Offsetting these obligations, it had cash of ₩1.02b as well as receivables valued at ₩5.25b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩9.24b.

Given LK Samyang has a market capitalization of ₩117.5b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since LK Samyang 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.

View our latest analysis for LK Samyang

In the last year LK Samyang had a loss before interest and tax, and actually shrunk its revenue by 18%, to ₩32b. That's not what we would hope to see.

Caveat Emptor

While LK Samyang'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 ₩3.2b 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 ₩7.0b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. To that end, you should learn about the 3 warning signs we've spotted with LK Samyang (including 2 which don't sit too well with us) .

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.