Wing's Foot (KOSDAQ:335870) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 Wing's Foot Inc. (KOSDAQ:335870) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Wing's Foot's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Wing's Foot had ₩12.2b of debt, an increase on ₩6.48b, over one year. But it also has ₩17.4b in cash to offset that, meaning it has ₩5.19b net cash.

A Look At Wing's Foot's Liabilities

According to the last reported balance sheet, Wing's Foot had liabilities of ₩21.4b due within 12 months, and liabilities of ₩4.34b due beyond 12 months. Offsetting this, it had ₩17.4b in cash and ₩1.66b in receivables that were due within 12 months. So its liabilities total ₩6.70b more than the combination of its cash and short-term receivables.

Of course, Wing's Foot has a market capitalization of ₩34.8b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Wing's Foot boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Wing's Foot

The modesty of its debt load may become crucial for Wing's Foot if management cannot prevent a repeat of the 52% cut to EBIT over the last year. 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 you can't view debt in total isolation; since Wing's Foot will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Wing's Foot 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. In the last three years, Wing's Foot's free cash flow amounted to 41% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While Wing's Foot does have more liabilities than liquid assets, it also has net cash of ₩5.19b. So we don't have any problem with Wing's Foot's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Wing's Foot 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.