Is DUKSAN TECHOPIALtd (KOSDAQ:317330) A Risky Investment?

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 DUKSAN TECHOPIA Co.,Ltd. (KOSDAQ:317330) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for DUKSAN TECHOPIALtd

What Is DUKSAN TECHOPIALtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 DUKSAN TECHOPIALtd had debt of ₩251.3b, up from ₩209.2b in one year. On the flip side, it has ₩146.5b in cash leading to net debt of about ₩104.8b.

A Look At DUKSAN TECHOPIALtd's Liabilities

We can see from the most recent balance sheet that DUKSAN TECHOPIALtd had liabilities of ₩313.2b falling due within a year, and liabilities of ₩117.3b due beyond that. Offsetting this, it had ₩146.5b in cash and ₩8.99b in receivables that were due within 12 months. So it has liabilities totalling ₩275.0b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since DUKSAN TECHOPIALtd has a market capitalization of ₩715.7b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since DUKSAN TECHOPIALtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year DUKSAN TECHOPIALtd's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, DUKSAN TECHOPIALtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩21b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩116b in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with DUKSAN TECHOPIALtd (at least 2 which are potentially serious) , and understanding them should be part of your investment process.

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.