Is Union (KRX:000910) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Union Corporation (KRX:000910) does use debt in its business. 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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Union Carry?

The chart below, which you can click on for greater detail, shows that Union had ₩145.1b in debt in December 2024; about the same as the year before. However, it also had ₩7.71b in cash, and so its net debt is ₩137.4b.

How Strong Is Union's Balance Sheet?

According to the last reported balance sheet, Union had liabilities of ₩157.1b due within 12 months, and liabilities of ₩46.8b due beyond 12 months. On the other hand, it had cash of ₩7.71b and ₩54.9b worth of receivables due within a year. So its liabilities total ₩141.3b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of ₩103.2b, we think shareholders really should watch Union's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is Union's earnings that will influence how the balance sheet holds up in the future. 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 .

View our latest analysis for Union

In the last year Union had a loss before interest and tax, and actually shrunk its revenue by 2.9%, to ₩218b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Union produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₩11b at the EBIT level. 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. For example, we would not want to see a repeat of last year's loss of ₩42b. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Union is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...

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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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.