Is Youngone Holdings (KRX:009970) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Youngone Holdings Co., Ltd. (KRX:009970) does carry debt. But should shareholders be worried about its use of debt?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

How Much Debt Does Youngone Holdings Carry?

The image below, which you can click on for greater detail, shows that Youngone Holdings had debt of ₩345.3b at the end of March 2025, a reduction from ₩551.5b over a year. However, it does have ₩1.95t in cash offsetting this, leading to net cash of ₩1.61t.

A Look At Youngone Holdings' Liabilities

We can see from the most recent balance sheet that Youngone Holdings had liabilities of ₩781.5b falling due within a year, and liabilities of ₩793.8b due beyond that. On the other hand, it had cash of ₩1.95t and ₩596.4b worth of receivables due within a year. So it actually has ₩973.1b more liquid assets than total liabilities.

This surplus liquidity suggests that Youngone Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Youngone Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Youngone Holdings

The modesty of its debt load may become crucial for Youngone Holdings if management cannot prevent a repeat of the 32% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But it is Youngone Holdings'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Youngone Holdings 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 most recent three years, Youngone Holdings recorded free cash flow worth 59% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Youngone Holdings has ₩1.61t in net cash and a decent-looking balance sheet. So we don't think Youngone Holdings's use of debt is risky. Given Youngone Holdings has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.