Health Check: How Prudently Does DGPLtd (KOSDAQ:060900) Use Debt?

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.' 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. As with many other companies DGP Co.,Ltd. (KOSDAQ:060900) makes use of debt. But the more important question is: how much risk is that debt creating?

Our free stock report includes 1 warning sign investors should be aware of before investing in DGPLtd. Read for free now.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is DGPLtd's Debt?

As you can see below, DGPLtd had ₩7.39b of debt at December 2024, down from ₩11.9b a year prior. But it also has ₩12.6b in cash to offset that, meaning it has ₩5.18b net cash.

How Healthy Is DGPLtd's Balance Sheet?

We can see from the most recent balance sheet that DGPLtd had liabilities of ₩21.0b falling due within a year, and liabilities of ₩140.4m due beyond that. Offsetting these obligations, it had cash of ₩12.6b as well as receivables valued at ₩11.0b due within 12 months. So it can boast ₩2.45b more liquid assets than total liabilities.

This surplus suggests that DGPLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, DGPLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is DGPLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for DGPLtd

Over 12 months, DGPLtd made a loss at the EBIT level, and saw its revenue drop to ₩12b, which is a fall of 35%. To be frank that doesn't bode well.

So How Risky Is DGPLtd?

Although DGPLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩54m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for DGPLtd that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.