These 4 Measures Indicate That Duk San NeoluxLtd (KOSDAQ:213420) Is Using Debt Safely

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Duk San Neolux Co.,Ltd (KOSDAQ:213420) makes use of debt. But is this debt a concern to shareholders?

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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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Duk San NeoluxLtd's Net Debt?

As you can see below, Duk San NeoluxLtd had ₩22.0b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has ₩71.3b in cash, leading to a ₩49.3b net cash position.

How Healthy Is Duk San NeoluxLtd's Balance Sheet?

The latest balance sheet data shows that Duk San NeoluxLtd had liabilities of ₩23.5b due within a year, and liabilities of ₩29.8b falling due after that. Offsetting these obligations, it had cash of ₩71.3b as well as receivables valued at ₩16.9b due within 12 months. So it can boast ₩34.8b more liquid assets than total liabilities.

This short term liquidity is a sign that Duk San NeoluxLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Duk San NeoluxLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Duk San NeoluxLtd

On top of that, Duk San NeoluxLtd grew its EBIT by 59% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Duk San NeoluxLtd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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 puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Duk San NeoluxLtd has ₩49.3b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩39b, being 82% of its EBIT. So we don't think Duk San NeoluxLtd's use of debt is risky. 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.

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.