Here's Why TSE (KOSDAQ:131290) Can Manage Its Debt Responsibly

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 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. We note that TSE Co., Ltd (KOSDAQ:131290) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is TSE's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 TSE had debt of ₩41.9b, up from ₩37.9b in one year. However, its balance sheet shows it holds ₩63.4b in cash, so it actually has ₩21.5b net cash.

How Healthy Is TSE's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TSE had liabilities of ₩94.1b due within 12 months and liabilities of ₩27.9b due beyond that. On the other hand, it had cash of ₩63.4b and ₩105.9b worth of receivables due within a year. So it actually has ₩47.3b more liquid assets than total liabilities.

This short term liquidity is a sign that TSE could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that TSE has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for TSE

In addition to that, we're happy to report that TSE has boosted its EBIT by 59%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine TSE's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While TSE 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. Over the last two years, TSE saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that TSE has net cash of ₩21.5b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 59% over the last year. So we are not troubled with TSE's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for TSE you should be aware of.

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.