These 4 Measures Indicate That Tfe (KOSDAQ:425420) Is Using Debt Reasonably Well

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Tfe Inc. (KOSDAQ:425420) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Tfe Carry?

As you can see below, at the end of June 2025, Tfe had ₩34.0b of debt, up from ₩28.1b a year ago. Click the image for more detail. But on the other hand it also has ₩53.9b in cash, leading to a ₩19.8b net cash position.

How Healthy Is Tfe's Balance Sheet?

The latest balance sheet data shows that Tfe had liabilities of ₩16.5b due within a year, and liabilities of ₩38.1b falling due after that. Offsetting these obligations, it had cash of ₩53.9b as well as receivables valued at ₩9.79b due within 12 months. So it actually has ₩9.03b more liquid assets than total liabilities.

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

Check out our latest analysis for Tfe

On the other hand, Tfe saw its EBIT drop by 4.1% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Tfe 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Tfe 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. Over the last three years, Tfe saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tfe has net cash of ₩19.8b, as well as more liquid assets than liabilities. So we are not troubled with Tfe's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Tfe you should know about.

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.

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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.