Does Duckshin Housing (KOSDAQ:090410) Have A Healthy Balance Sheet?

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. We note that Duckshin Housing Co., Ltd. (KOSDAQ:090410) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Duckshin Housing

How Much Debt Does Duckshin Housing Carry?

As you can see below, at the end of September 2020, Duckshin Housing had ₩33.0b of debt, up from ₩21.7b a year ago. Click the image for more detail. However, it does have ₩20.0b in cash offsetting this, leading to net debt of about ₩13.0b.

How Strong Is Duckshin Housing's Balance Sheet?

We can see from the most recent balance sheet that Duckshin Housing had liabilities of ₩33.0b falling due within a year, and liabilities of ₩19.4b due beyond that. Offsetting this, it had ₩20.0b in cash and ₩20.5b in receivables that were due within 12 months. So it has liabilities totalling ₩11.8b more than its cash and near-term receivables, combined.

Since publicly traded Duckshin Housing shares are worth a total of ₩67.7b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is Duckshin Housing'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.

Over 12 months, Duckshin Housing made a loss at the EBIT level, and saw its revenue drop to ₩127b, which is a fall of 18%. We would much prefer see growth.

Caveat Emptor

Not only did Duckshin Housing'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 ₩6.2b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩5.1b of cash over the last year. So in short it's a really risky stock. 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. Be aware that Duckshin Housing is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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