Sungwoo Techron. Co.Ltd (KOSDAQ:045300) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, '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. As with many other companies Sungwoo Techron. Co,.Ltd (KOSDAQ:045300) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, 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.

View our latest analysis for Sungwoo Techron. Co.Ltd

How Much Debt Does Sungwoo Techron. Co.Ltd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Sungwoo Techron. Co.Ltd had ₩13.9b of debt, an increase on ₩12.0b, over one year. But on the other hand it also has ₩25.3b in cash, leading to a ₩11.4b net cash position.

How Healthy Is Sungwoo Techron. Co.Ltd's Balance Sheet?

We can see from the most recent balance sheet that Sungwoo Techron. Co.Ltd had liabilities of ₩21.0b falling due within a year, and liabilities of ₩3.95b due beyond that. Offsetting these obligations, it had cash of ₩25.3b as well as receivables valued at ₩4.39b due within 12 months. So it actually has ₩4.80b more liquid assets than total liabilities.

This surplus suggests that Sungwoo Techron. Co.Ltd is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Sungwoo Techron. Co.Ltd boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, Sungwoo Techron. Co.Ltd turned things around in the last 12 months, delivering and EBIT of ₩1.5b. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sungwoo Techron. Co.Ltd 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 company can only pay off debt with cold hard cash, not accounting profits. While Sungwoo Techron. Co.Ltd 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. Happily for any shareholders, Sungwoo Techron. Co.Ltd actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sungwoo Techron. Co.Ltd has net cash of ₩11.4b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₩2.5b, being 165% of its EBIT. So is Sungwoo Techron. Co.Ltd'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. Case in point: We've spotted 4 warning signs for Sungwoo Techron. Co.Ltd you should be aware of, and 1 of them doesn't sit too well with us.

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.