Is TOEBOX KOREA.Ltd (KOSDAQ:215480) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, TOEBOX KOREA.Ltd. (KOSDAQ:215480) does carry debt. But should shareholders be worried about its use of debt?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does TOEBOX KOREA.Ltd Carry?

As you can see below, at the end of December 2024, TOEBOX KOREA.Ltd had ₩3.50b of debt, up from ₩2.50b a year ago. Click the image for more detail. But on the other hand it also has ₩8.83b in cash, leading to a ₩5.33b net cash position.

How Healthy Is TOEBOX KOREA.Ltd's Balance Sheet?

We can see from the most recent balance sheet that TOEBOX KOREA.Ltd had liabilities of ₩9.16b falling due within a year, and liabilities of ₩673.3m due beyond that. Offsetting this, it had ₩8.83b in cash and ₩3.24b in receivables that were due within 12 months. So it can boast ₩2.24b more liquid assets than total liabilities.

This surplus suggests that TOEBOX KOREA.Ltd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that TOEBOX KOREA.Ltd has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for TOEBOX KOREA.Ltd

In fact TOEBOX KOREA.Ltd's saving grace is its low debt levels, because its EBIT has tanked 55% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is TOEBOX KOREA.Ltd's earnings that will influence how the balance sheet holds up in the future. 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 .

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. TOEBOX KOREA.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. During the last three years, TOEBOX KOREA.Ltd burned a lot of cash. 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 TOEBOX KOREA.Ltd has ₩5.33b in net cash and a decent-looking balance sheet. So although we see some areas for improvement, we're not too worried about TOEBOX KOREA.Ltd's balance sheet. 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. Case in point: We've spotted 1 warning sign for TOEBOX KOREA.Ltd you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.