Is DongWon DevelopmentLtd (KOSDAQ:013120) A Risky Investment?

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.' 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. We note that DongWon Development Co.,Ltd. (KOSDAQ:013120) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 DongWon DevelopmentLtd's Debt?

As you can see below, at the end of June 2025, DongWon DevelopmentLtd had ₩145.9b of debt, up from ₩120.8b a year ago. Click the image for more detail. But on the other hand it also has ₩171.5b in cash, leading to a ₩25.6b net cash position.

A Look At DongWon DevelopmentLtd's Liabilities

We can see from the most recent balance sheet that DongWon DevelopmentLtd had liabilities of ₩194.5b falling due within a year, and liabilities of ₩170.0b due beyond that. Offsetting this, it had ₩171.5b in cash and ₩428.6b in receivables that were due within 12 months. So it can boast ₩235.6b more liquid assets than total liabilities.

This surplus liquidity suggests that DongWon DevelopmentLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that DongWon DevelopmentLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since DongWon DevelopmentLtd will need earnings to service that debt. 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.

See our latest analysis for DongWon DevelopmentLtd

In the last year DongWon DevelopmentLtd had a loss before interest and tax, and actually shrunk its revenue by 42%, to ₩383b. To be frank that doesn't bode well.

So How Risky Is DongWon DevelopmentLtd?

Although DongWon DevelopmentLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩251m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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 DongWon DevelopmentLtd has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

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.