Does DSK (KOSDAQ:109740) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies DSK Co., Ltd. (KOSDAQ:109740) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is DSK's Net Debt?

The chart below, which you can click on for greater detail, shows that DSK had ₩13.0b in debt in December 2024; about the same as the year before. But on the other hand it also has ₩34.1b in cash, leading to a ₩21.1b net cash position.

How Strong Is DSK's Balance Sheet?

We can see from the most recent balance sheet that DSK had liabilities of ₩30.7b falling due within a year, and liabilities of ₩2.24b due beyond that. On the other hand, it had cash of ₩34.1b and ₩5.11b worth of receivables due within a year. So it actually has ₩6.27b more liquid assets than total liabilities.

This surplus suggests that DSK has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, DSK boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is DSK's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for DSK

Over 12 months, DSK made a loss at the EBIT level, and saw its revenue drop to ₩23b, which is a fall of 68%. To be frank that doesn't bode well.

So How Risky Is DSK?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months DSK lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩12b of cash and made a loss of ₩7.8b. While this does make the company a bit risky, it's important to remember it has net cash of ₩21.1b. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - DSK has 1 warning sign we think you should be aware of.

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.