Keum Kang Steel (KOSDAQ:053260) Seems To Use Debt Quite Sensibly

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, Keum Kang Steel Co., Ltd. (KOSDAQ:053260) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is Keum Kang Steel's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Keum Kang Steel had debt of ₩7.78b, up from ₩1.18b in one year. However, it does have ₩63.1b in cash offsetting this, leading to net cash of ₩55.3b.

How Healthy Is Keum Kang Steel's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Keum Kang Steel had liabilities of ₩32.0b due within 12 months and liabilities of ₩1.71b due beyond that. On the other hand, it had cash of ₩63.1b and ₩34.8b worth of receivables due within a year. So it actually has ₩64.2b more liquid assets than total liabilities.

This excess liquidity is a great indication that Keum Kang Steel's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Keum Kang Steel has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Keum Kang Steel

Fortunately, Keum Kang Steel grew its EBIT by 3.5% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Keum Kang Steel 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Keum Kang Steel may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Keum Kang Steel burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Keum Kang Steel has net cash of ₩55.3b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 3.5% in the last twelve months. So we don't think Keum Kang Steel's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Keum Kang Steel (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.