PSK HOLDINGS (KOSDAQ:031980) Has A Rock Solid Balance Sheet

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies PSK HOLDINGS Inc. (KOSDAQ:031980) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for PSK HOLDINGS

How Much Debt Does PSK HOLDINGS Carry?

The image below, which you can click on for greater detail, shows that PSK HOLDINGS had debt of ₩16.0b at the end of September 2024, a reduction from ₩19.0b over a year. However, its balance sheet shows it holds ₩138.6b in cash, so it actually has ₩122.6b net cash.

How Strong Is PSK HOLDINGS' Balance Sheet?

According to the last reported balance sheet, PSK HOLDINGS had liabilities of ₩56.7b due within 12 months, and liabilities of ₩26.3b due beyond 12 months. On the other hand, it had cash of ₩138.6b and ₩14.8b worth of receivables due within a year. So it actually has ₩70.4b more liquid assets than total liabilities.

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

Better yet, PSK HOLDINGS grew its EBIT by 161% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if PSK HOLDINGS can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While PSK HOLDINGS 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. During the last three years, PSK HOLDINGS produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that PSK HOLDINGS has net cash of ₩122.6b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 161% over the last year. So is PSK HOLDINGS's debt a risk? It doesn't seem so to us. 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 example, we've discovered 3 warning signs for PSK HOLDINGS that you should be aware of before investing here.

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.

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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.