Is Barunson Entertainment & Arts (KOSDAQ:035620) Using Debt Sensibly?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Barunson Entertainment & Arts Corporation (KOSDAQ:035620) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Barunson Entertainment & Arts's Net Debt?

As you can see below, Barunson Entertainment & Arts had ₩30.0b of debt at March 2025, down from ₩38.4b a year prior. However, it does have ₩1.91b in cash offsetting this, leading to net debt of about ₩28.1b.

A Look At Barunson Entertainment & Arts' Liabilities

We can see from the most recent balance sheet that Barunson Entertainment & Arts had liabilities of ₩34.5b falling due within a year, and liabilities of ₩7.31b due beyond that. Offsetting this, it had ₩1.91b in cash and ₩2.11b in receivables that were due within 12 months. So its liabilities total ₩37.8b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₩43.8b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Barunson Entertainment & Arts'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 Barunson Entertainment & Arts

In the last year Barunson Entertainment & Arts had a loss before interest and tax, and actually shrunk its revenue by 43%, to ₩12b. To be frank that doesn't bode well.

Caveat Emptor

While Barunson Entertainment & Arts's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩767m 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 ₩7.2b of cash over the last year. So suffice it to say we consider the stock very risky. 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. For instance, we've identified 4 warning signs for Barunson Entertainment & Arts (2 shouldn't be ignored) you should be aware of.

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.