Is Daedong Steel (KOSDAQ:048470) Using Too Much Debt?

Warren Buffett famously said, '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. We can see that Daedong Steel Co., Ltd. (KOSDAQ:048470) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've discovered 4 warning signs about Daedong Steel. View them for free.

When Is Debt A Problem?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Daedong Steel's Net Debt?

The image below, which you can click on for greater detail, shows that Daedong Steel had debt of ₩4.28b at the end of December 2024, a reduction from ₩4.50b over a year. But on the other hand it also has ₩40.9b in cash, leading to a ₩36.6b net cash position.

A Look At Daedong Steel's Liabilities

Zooming in on the latest balance sheet data, we can see that Daedong Steel had liabilities of ₩18.5b due within 12 months and liabilities of ₩4.14b due beyond that. Offsetting these obligations, it had cash of ₩40.9b as well as receivables valued at ₩26.1b due within 12 months. So it can boast ₩44.3b more liquid assets than total liabilities.

This surplus liquidity suggests that Daedong Steel's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Daedong Steel boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Daedong Steel's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Daedong Steel

In the last year Daedong Steel's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Daedong Steel?

While Daedong Steel lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₩449m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. There's no doubt the next few years will be crucial to how the business matures. 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. To that end, you should learn about the 4 warning signs we've spotted with Daedong Steel (including 2 which can't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.