Here's Why RF Materials (KOSDAQ:327260) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 RF Materials Co., Ltd. (KOSDAQ:327260) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is RF Materials's Net Debt?

You can click the graphic below for the historical numbers, but it shows that RF Materials had ₩9.71b of debt in June 2025, down from ₩17.2b, one year before. But on the other hand it also has ₩44.0b in cash, leading to a ₩34.3b net cash position.

How Healthy Is RF Materials' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RF Materials had liabilities of ₩23.2b due within 12 months and liabilities of ₩9.95b due beyond that. On the other hand, it had cash of ₩44.0b and ₩11.0b worth of receivables due within a year. So it actually has ₩21.8b more liquid assets than total liabilities.

This excess liquidity suggests that RF Materials is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that RF Materials has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for RF Materials

Although RF Materials made a loss at the EBIT level, last year, it was also good to see that it generated ₩2.1b in EBIT over the last twelve months. 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 RF Materials 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While RF Materials 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. During the last year, RF Materials burned a lot of cash. 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 RF Materials has net cash of ₩34.3b, as well as more liquid assets than liabilities. So we are not troubled with RF Materials's debt use. 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. For example, we've discovered 3 warning signs for RF Materials (2 are a bit unpleasant!) that you should be aware of before investing here.

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.