Is EG (KOSDAQ:037370) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 EG Corporation (KOSDAQ:037370) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is EG's Net Debt?

As you can see below, at the end of June 2025, EG had ₩107.7b of debt, up from ₩103.1b a year ago. Click the image for more detail. However, it also had ₩6.18b in cash, and so its net debt is ₩101.5b.

How Strong Is EG's Balance Sheet?

According to the last reported balance sheet, EG had liabilities of ₩108.7b due within 12 months, and liabilities of ₩17.6b due beyond 12 months. Offsetting this, it had ₩6.18b in cash and ₩7.41b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩112.7b.

The deficiency here weighs heavily on the ₩59.1b 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, EG 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 EG 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.

See our latest analysis for EG

In the last year EG wasn't profitable at an EBIT level, but managed to grow its revenue by 20%, to ₩65b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, EG had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩3.7b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩3.9b over the last twelve months. So suffice it to say we consider the stock to be risky. 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 instance, we've identified 4 warning signs for EG (1 can't be ignored) you should be aware of.

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.