Would Young Poong Paper MfgLtd (KRX:006740) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Young Poong Paper Mfg Co.,Ltd. (KRX:006740) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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, 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.

View our latest analysis for Young Poong Paper MfgLtd

How Much Debt Does Young Poong Paper MfgLtd Carry?

As you can see below, Young Poong Paper MfgLtd had ₩60.1b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₩7.26b in cash, and so its net debt is ₩52.8b.

A Look At Young Poong Paper MfgLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Young Poong Paper MfgLtd had liabilities of ₩69.6b due within 12 months and liabilities of ₩4.39b due beyond that. Offsetting this, it had ₩7.26b in cash and ₩22.0b in receivables that were due within 12 months. So it has liabilities totalling ₩44.7b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₩58.7b, so it does suggest shareholders should keep an eye on Young Poong Paper MfgLtd's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Young Poong Paper MfgLtd 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.

In the last year Young Poong Paper MfgLtd had a loss before interest and tax, and actually shrunk its revenue by 4.4%, to ₩86b. We would much prefer see growth.

Caveat Emptor

Importantly, Young Poong Paper MfgLtd had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩8.0b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 ₩22b of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Young Poong Paper MfgLtd has 5 warning signs (and 3 which are concerning) we think you should know about.

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.