Health Check: How Prudently Does E&M (KOSDAQ:089230) Use 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 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. As with many other companies The E&M Co., Ltd. (KOSDAQ:089230) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is E&M's Debt?

The chart below, which you can click on for greater detail, shows that E&M had ₩40.4b in debt in September 2025; about the same as the year before. On the flip side, it has ₩10.9b in cash leading to net debt of about ₩29.5b.

How Strong Is E&M's Balance Sheet?

According to the last reported balance sheet, E&M had liabilities of ₩53.8b due within 12 months, and liabilities of ₩390.3m due beyond 12 months. On the other hand, it had cash of ₩10.9b and ₩5.55b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩37.7b.

When you consider that this deficiency exceeds the company's ₩29.2b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is E&M's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for E&M

Over 12 months, E&M made a loss at the EBIT level, and saw its revenue drop to ₩18b, which is a fall of 24%. To be frank that doesn't bode well.

Caveat Emptor

While E&M's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₩7.7b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₩6.0b in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for E&M (1 can't be ignored!) that you should be aware of before investing here.

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.