We Think Kumho Petro ChemicalLtd (KRX:011780) Can Stay On Top Of Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 can see that Kumho Petro Chemical Co.,Ltd (KRX:011780) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Kumho Petro ChemicalLtd's Net Debt?

As you can see below, at the end of September 2025, Kumho Petro ChemicalLtd had ₩948.4b of debt, up from ₩889.9b a year ago. Click the image for more detail. But it also has ₩1.10t in cash to offset that, meaning it has ₩153.1b net cash.

How Healthy Is Kumho Petro ChemicalLtd's Balance Sheet?

The latest balance sheet data shows that Kumho Petro ChemicalLtd had liabilities of ₩1.36t due within a year, and liabilities of ₩831.7b falling due after that. Offsetting this, it had ₩1.10t in cash and ₩793.5b in receivables that were due within 12 months. So it has liabilities totalling ₩299.1b more than its cash and near-term receivables, combined.

Since publicly traded Kumho Petro ChemicalLtd shares are worth a total of ₩2.86t, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Kumho Petro ChemicalLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Kumho Petro ChemicalLtd

But the other side of the story is that Kumho Petro ChemicalLtd saw its EBIT decline by 6.2% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Kumho Petro ChemicalLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Kumho Petro ChemicalLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Kumho Petro ChemicalLtd recorded free cash flow worth 53% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Kumho Petro ChemicalLtd's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩153.1b. So we don't have any problem with Kumho Petro ChemicalLtd's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Kumho Petro ChemicalLtd .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.