Is DREAMINSIGHT Co.Ltd (KOSDAQ:362990) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that DREAMINSIGHT Co,.Ltd. (KOSDAQ:362990) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 DREAMINSIGHT Co.Ltd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 DREAMINSIGHT Co.Ltd had ₩7.38b of debt, an increase on ₩5.43b, over one year. However, it does have ₩18.2b in cash offsetting this, leading to net cash of ₩10.8b.

How Strong Is DREAMINSIGHT Co.Ltd's Balance Sheet?

According to the last reported balance sheet, DREAMINSIGHT Co.Ltd had liabilities of ₩12.0b due within 12 months, and liabilities of ₩5.70b due beyond 12 months. On the other hand, it had cash of ₩18.2b and ₩6.04b worth of receivables due within a year. So it can boast ₩6.53b more liquid assets than total liabilities.

It's good to see that DREAMINSIGHT Co.Ltd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, DREAMINSIGHT Co.Ltd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for DREAMINSIGHT Co.Ltd

It is just as well that DREAMINSIGHT Co.Ltd's load is not too heavy, because its EBIT was down 85% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is DREAMINSIGHT Co.Ltd'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. DREAMINSIGHT Co.Ltd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last two years, DREAMINSIGHT Co.Ltd saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case DREAMINSIGHT Co.Ltd has ₩10.8b in net cash and a decent-looking balance sheet. So we are not troubled with DREAMINSIGHT Co.Ltd's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for DREAMINSIGHT Co.Ltd (1 is significant!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.