Is Union (KRX:000910) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Union Corporation (KRX:000910) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Union

What Is Union's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Union had ₩143.1b of debt in June 2024, down from ₩150.0b, one year before. However, because it has a cash reserve of ₩11.0b, its net debt is less, at about ₩132.1b.

A Look At Union's Liabilities

Zooming in on the latest balance sheet data, we can see that Union had liabilities of ₩159.1b due within 12 months and liabilities of ₩43.9b due beyond that. On the other hand, it had cash of ₩11.0b and ₩64.9b worth of receivables due within a year. So it has liabilities totalling ₩127.0b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₩70.8b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Union would probably need a major re-capitalization if its creditors were to demand repayment. 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.

Over 12 months, Union made a loss at the EBIT level, and saw its revenue drop to ₩224b, which is a fall of 3.0%. 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 ₩2.5b 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. It's fair to say the loss of ₩15b didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Union you should know about.

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.