Would Daeyang Paper Mfg (KOSDAQ:006580) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Daeyang Paper Mfg. Co., Ltd. (KOSDAQ:006580) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Daeyang Paper Mfg

What Is Daeyang Paper Mfg's Debt?

You can click the graphic below for the historical numbers, but it shows that Daeyang Paper Mfg had ₩49.9b of debt in March 2024, down from ₩54.0b, one year before. However, it also had ₩35.6b in cash, and so its net debt is ₩14.2b.

A Look At Daeyang Paper Mfg's Liabilities

The latest balance sheet data shows that Daeyang Paper Mfg had liabilities of ₩56.0b due within a year, and liabilities of ₩19.6b falling due after that. Offsetting these obligations, it had cash of ₩35.6b as well as receivables valued at ₩19.2b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩20.8b.

Of course, Daeyang Paper Mfg has a market capitalization of ₩110.3b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Daeyang Paper Mfg'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.

Over 12 months, Daeyang Paper Mfg reported revenue of ₩149b, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Daeyang Paper Mfg had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩2.6b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of ₩5.9b and a profit of ₩708m. So one might argue that there's still a chance it can get things on the right track. 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 Daeyang Paper Mfg has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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