Is Daemyung SonoseasonLtd (KOSDAQ:007720) A Risky Investment?

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. We note that Daemyung Sonoseason Co.,Ltd. (KOSDAQ:007720) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Daemyung SonoseasonLtd

What Is Daemyung SonoseasonLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Daemyung SonoseasonLtd had debt of ₩29.8b, up from ₩27.0b in one year. But on the other hand it also has ₩36.1b in cash, leading to a ₩6.32b net cash position.

A Look At Daemyung SonoseasonLtd's Liabilities

The latest balance sheet data shows that Daemyung SonoseasonLtd had liabilities of ₩43.9b due within a year, and liabilities of ₩2.96b falling due after that. On the other hand, it had cash of ₩36.1b and ₩10.1b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Daemyung SonoseasonLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩91.3b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Daemyung SonoseasonLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Daemyung SonoseasonLtd 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.

In the last year Daemyung SonoseasonLtd had a loss before interest and tax, and actually shrunk its revenue by 16%, to ₩140b. That's not what we would hope to see.

So How Risky Is Daemyung SonoseasonLtd?

Although Daemyung SonoseasonLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩1.1b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 instance, we've identified 3 warning signs for Daemyung SonoseasonLtd (1 can't be ignored) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.