Is SK Innovation (KRX:096770) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, SK Innovation Co., Ltd. (KRX:096770) does carry debt. But is this debt a concern to shareholders?

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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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does SK Innovation Carry?

The image below, which you can click on for greater detail, shows that at March 2025 SK Innovation had debt of ₩49t, up from ₩32t in one year. On the flip side, it has ₩16t in cash leading to net debt of about ₩33t.

How Healthy Is SK Innovation's Balance Sheet?

According to the last reported balance sheet, SK Innovation had liabilities of ₩38t due within 12 months, and liabilities of ₩37t due beyond 12 months. Offsetting this, it had ₩16t in cash and ₩9.27t in receivables that were due within 12 months. So its liabilities total ₩50t more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩17t company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, SK Innovation would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if SK Innovation can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for SK Innovation

In the last year SK Innovation's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months SK Innovation produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩778b. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized ₩8.2t in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for SK Innovation (3 can't be ignored!) that you should be aware of before investing here.

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.