Is Dongil Steelux (KOSDAQ:023790) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Dongil Steelux Co., Ltd. (KOSDAQ:023790) does carry debt. But the real question is whether this debt is making the company risky.

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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. 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.

How Much Debt Does Dongil Steelux Carry?

As you can see below, Dongil Steelux had ₩40.3b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₩999.6m in cash, and so its net debt is ₩39.3b.

How Strong Is Dongil Steelux's Balance Sheet?

The latest balance sheet data shows that Dongil Steelux had liabilities of ₩39.3b due within a year, and liabilities of ₩15.3b falling due after that. Offsetting these obligations, it had cash of ₩999.6m as well as receivables valued at ₩2.78b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩50.8b.

The deficiency here weighs heavily on the ₩22.6b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Dongil Steelux would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Dongil Steelux 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 .

Check out our latest analysis for Dongil Steelux

In the last year Dongil Steelux had a loss before interest and tax, and actually shrunk its revenue by 23%, to ₩17b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Dongil Steelux's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₩1.8b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of ₩5.1b over the last twelve months. So suffice it to say we consider the stock to be risky. 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 instance, we've identified 3 warning signs for Dongil Steelux (2 can't be ignored) you should be aware of.

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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.