We Think Kyungdong Invest (KRX:012320) Can Manage Its Debt With Ease

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.' 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 Kyungdong Invest Co., Ltd (KRX:012320) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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.

What Is Kyungdong Invest's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Kyungdong Invest had ₩26.8b of debt in March 2025, down from ₩37.8b, one year before. But on the other hand it also has ₩94.4b in cash, leading to a ₩67.5b net cash position.

How Healthy Is Kyungdong Invest's Balance Sheet?

We can see from the most recent balance sheet that Kyungdong Invest had liabilities of ₩62.6b falling due within a year, and liabilities of ₩59.1b due beyond that. On the other hand, it had cash of ₩94.4b and ₩57.1b worth of receivables due within a year. So it can boast ₩29.8b more liquid assets than total liabilities.

This excess liquidity suggests that Kyungdong Invest is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Kyungdong Invest has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Kyungdong Invest

Also positive, Kyungdong Invest grew its EBIT by 29% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Kyungdong Invest 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Kyungdong Invest 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, Kyungdong Invest 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 Kyungdong Invest has net cash of ₩67.5b, as well as more liquid assets than liabilities. The cherry on top was that in converted 125% of that EBIT to free cash flow, bringing in ₩25b. The bottom line is that we do not find Kyungdong Invest's debt levels at all concerning. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Kyungdong Invest that you should be aware of before investing here.

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.

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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.