KOSESLtd (KOSDAQ:089890) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 KOSES Co.,Ltd (KOSDAQ:089890) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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, 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 KOSESLtd's Net Debt?

As you can see below, KOSESLtd had ₩7.00b of debt at June 2025, down from ₩18.0b a year prior. However, it does have ₩7.87b in cash offsetting this, leading to net cash of ₩871.4m.

How Healthy Is KOSESLtd's Balance Sheet?

We can see from the most recent balance sheet that KOSESLtd had liabilities of ₩21.1b falling due within a year, and liabilities of ₩3.38b due beyond that. Offsetting this, it had ₩7.87b in cash and ₩13.6b in receivables that were due within 12 months. So it has liabilities totalling ₩3.04b more than its cash and near-term receivables, combined.

Having regard to KOSESLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩483.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, KOSESLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for KOSESLtd

In addition to that, we're happy to report that KOSESLtd has boosted its EBIT by 56%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since KOSESLtd will need earnings to service that debt. 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 company can only pay off debt with cold hard cash, not accounting profits. KOSESLtd 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. Over the last two years, KOSESLtd recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

We could understand if investors are concerned about KOSESLtd's liabilities, but we can be reassured by the fact it has has net cash of ₩871.4m. And it impressed us with its EBIT growth of 56% over the last year. So we are not troubled with KOSESLtd's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with KOSESLtd (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.