Dong Suh Companies (KRX:026960) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, '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. We note that Dong Suh Companies Inc. (KRX:026960) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Dong Suh Companies's Net Debt?

The image below, which you can click on for greater detail, shows that Dong Suh Companies had debt of ₩2.50b at the end of June 2025, a reduction from ₩3.65b over a year. However, its balance sheet shows it holds ₩757.6b in cash, so it actually has ₩755.1b net cash.

How Strong Is Dong Suh Companies' Balance Sheet?

According to the last reported balance sheet, Dong Suh Companies had liabilities of ₩57.4b due within 12 months, and liabilities of ₩10.1b due beyond 12 months. On the other hand, it had cash of ₩757.6b and ₩45.4b worth of receivables due within a year. So it can boast ₩735.5b more liquid assets than total liabilities.

This surplus suggests that Dong Suh Companies is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Dong Suh Companies boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Dong Suh Companies

Fortunately, Dong Suh Companies grew its EBIT by 4.6% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Dong Suh Companies'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. Dong Suh Companies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Dong Suh Companies actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Dong Suh Companies has net cash of ₩755.1b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₩96b, being 253% of its EBIT. So is Dong Suh Companies's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Dong Suh Companies that you should be aware of before investing here.

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.