Duk San NeoluxLtd (KOSDAQ:213420) Has A Rock Solid Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Duk San Neolux Co.,Ltd (KOSDAQ:213420) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Duk San NeoluxLtd

How Much Debt Does Duk San NeoluxLtd Carry?

The chart below, which you can click on for greater detail, shows that Duk San NeoluxLtd had ₩21.6b in debt in June 2024; about the same as the year before. But it also has ₩46.6b in cash to offset that, meaning it has ₩25.0b net cash.

How Healthy Is Duk San NeoluxLtd's Balance Sheet?

We can see from the most recent balance sheet that Duk San NeoluxLtd had liabilities of ₩26.1b falling due within a year, and liabilities of ₩29.8b due beyond that. On the other hand, it had cash of ₩46.6b and ₩16.7b worth of receivables due within a year. So it can boast ₩7.35b more liquid assets than total liabilities.

Having regard to Duk San NeoluxLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩633.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Duk San NeoluxLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Duk San NeoluxLtd has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Duk San NeoluxLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Duk San NeoluxLtd 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. During the last three years, Duk San NeoluxLtd generated free cash flow amounting to a very robust 82% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Duk San NeoluxLtd has ₩25.0b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩30b, being 82% of its EBIT. So is Duk San NeoluxLtd's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Duk San NeoluxLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.