These 4 Measures Indicate That Ibkimyoung (KOSDAQ:339950) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Ibkimyoung Co., Ltd. (KOSDAQ:339950) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Ibkimyoung

What Is Ibkimyoung's Net Debt?

The image below, which you can click on for greater detail, shows that Ibkimyoung had debt of ₩2.99b at the end of September 2023, a reduction from ₩4.68b over a year. However, its balance sheet shows it holds ₩22.9b in cash, so it actually has ₩19.9b net cash.

How Healthy Is Ibkimyoung's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ibkimyoung had liabilities of ₩35.1b due within 12 months and liabilities of ₩7.58b due beyond that. On the other hand, it had cash of ₩22.9b and ₩12.5b worth of receivables due within a year. So its liabilities total ₩7.28b more than the combination of its cash and short-term receivables.

Of course, Ibkimyoung has a market capitalization of ₩106.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ibkimyoung also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that Ibkimyoung has boosted its EBIT by 95%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is Ibkimyoung'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Ibkimyoung 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. Happily for any shareholders, Ibkimyoung 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 it is always sensible to look at a company's total liabilities, it is very reassuring that Ibkimyoung has ₩19.9b in net cash. The cherry on top was that in converted 200% of that EBIT to free cash flow, bringing in ₩15b. So is Ibkimyoung'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. To that end, you should learn about the 3 warning signs we've spotted with Ibkimyoung (including 1 which shouldn't be ignored) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.