DSK (KOSDAQ:109740) Has Debt But No Earnings; Should You Worry?

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.' 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. We can see that DSK Co., Ltd. (KOSDAQ:109740) does use debt in its business. But the real question is whether this debt is making the company risky.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does DSK Carry?

The image below, which you can click on for greater detail, shows that at March 2025 DSK had debt of ₩15.0b, up from ₩13.0b in one year. But it also has ₩31.3b in cash to offset that, meaning it has ₩16.3b net cash.

How Healthy Is DSK's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DSK had liabilities of ₩31.4b due within 12 months and liabilities of ₩2.55b due beyond that. On the other hand, it had cash of ₩31.3b and ₩3.07b worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to DSK's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩204.6b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, DSK boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

See our latest analysis for DSK

In the last year DSK had a loss before interest and tax, and actually shrunk its revenue by 69%, to ₩21b. 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 we do note that DSK had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩15b of cash and made a loss of ₩10b. However, it has net cash of ₩16.3b, so it has a bit of time before it will need more capital. 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. 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. For instance, we've identified 1 warning sign for DSK that 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.

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.