We Think Youlchon ChemicalLtd (KRX:008730) Has A Fair Chunk Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Youlchon Chemical Co.,Ltd. (KRX:008730) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Youlchon ChemicalLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Youlchon ChemicalLtd had ₩267.8b of debt, an increase on ₩246.8b, over one year. However, it does have ₩24.0b in cash offsetting this, leading to net debt of about ₩243.7b.

How Healthy Is Youlchon ChemicalLtd's Balance Sheet?

According to the last reported balance sheet, Youlchon ChemicalLtd had liabilities of ₩213.5b due within 12 months, and liabilities of ₩151.1b due beyond 12 months. Offsetting this, it had ₩24.0b in cash and ₩113.6b in receivables that were due within 12 months. So it has liabilities totalling ₩226.9b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Youlchon ChemicalLtd is worth ₩751.4b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Youlchon ChemicalLtd'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 Youlchon ChemicalLtd

Over 12 months, Youlchon ChemicalLtd reported revenue of ₩457b, which is a gain of 10%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Youlchon ChemicalLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩18b at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩72b 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 Youlchon ChemicalLtd has 3 warning signs (and 2 which can't be ignored) we think 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.