Chong Kun Dang Pharmaceutical (KRX:185750) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Chong Kun Dang Pharmaceutical Corp. (KRX:185750) does carry debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Chong Kun Dang Pharmaceutical's Debt?

The image below, which you can click on for greater detail, shows that Chong Kun Dang Pharmaceutical had debt of ₩181.8b at the end of March 2025, a reduction from ₩209.5b over a year. However, it does have ₩283.7b in cash offsetting this, leading to net cash of ₩101.9b.

How Healthy Is Chong Kun Dang Pharmaceutical's Balance Sheet?

The latest balance sheet data shows that Chong Kun Dang Pharmaceutical had liabilities of ₩395.2b due within a year, and liabilities of ₩197.5b falling due after that. On the other hand, it had cash of ₩283.7b and ₩305.1b worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Chong Kun Dang Pharmaceutical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩1.08t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Chong Kun Dang Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Chong Kun Dang Pharmaceutical

The modesty of its debt load may become crucial for Chong Kun Dang Pharmaceutical if management cannot prevent a repeat of the 67% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Chong Kun Dang Pharmaceutical can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Chong Kun Dang Pharmaceutical 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. During the last three years, Chong Kun Dang Pharmaceutical produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Chong Kun Dang Pharmaceutical's liabilities, but we can be reassured by the fact it has has net cash of ₩101.9b. So we are not troubled with Chong Kun Dang Pharmaceutical's debt use. 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, we've discovered 3 warning signs for Chong Kun Dang Pharmaceutical (1 is significant!) that you should be aware of before investing here.

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.