Does CHUNGDAMGLOBAL (KOSDAQ:362320) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies CHUNGDAMGLOBAL Co., Ltd. (KOSDAQ:362320) makes use of debt. But is this debt a concern to shareholders?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is CHUNGDAMGLOBAL's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 CHUNGDAMGLOBAL had debt of ₩56.1b, up from ₩30.2b in one year. However, it also had ₩36.1b in cash, and so its net debt is ₩20.1b.

A Look At CHUNGDAMGLOBAL's Liabilities

We can see from the most recent balance sheet that CHUNGDAMGLOBAL had liabilities of ₩78.1b falling due within a year, and liabilities of ₩21.0b due beyond that. Offsetting these obligations, it had cash of ₩36.1b as well as receivables valued at ₩93.2b due within 12 months. So it actually has ₩30.1b more liquid assets than total liabilities.

This excess liquidity suggests that CHUNGDAMGLOBAL is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders.

View our latest analysis for CHUNGDAMGLOBAL

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

CHUNGDAMGLOBAL has net debt worth 2.4 times EBITDA, which isn't too much, but its interest cover looks a bit on the low side, with EBIT at only 4.5 times the interest expense. While these numbers do not alarm us, it's worth noting that the cost of the company's debt is having a real impact. Pleasingly, CHUNGDAMGLOBAL is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 258% gain in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CHUNGDAMGLOBAL's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. During the last three years, CHUNGDAMGLOBAL burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

Based on what we've seen CHUNGDAMGLOBAL is not finding it easy, given its conversion of EBIT to free cash flow, but the other factors we considered give us cause to be optimistic. In particular, we are dazzled with its EBIT growth rate. When we consider all the elements mentioned above, it seems to us that CHUNGDAMGLOBAL is managing its debt quite well. Having said that, the load is sufficiently heavy that we would recommend any shareholders keep a close eye on it. 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. To that end, you should be aware of the 1 warning sign we've spotted with CHUNGDAMGLOBAL .

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.

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.