Is Shinsung E&GLtd (KRX:011930) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Shinsung E&G Co.,Ltd. (KRX:011930) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Shinsung E&GLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Shinsung E&GLtd had ₩222.6b of debt, an increase on ₩209.6b, over one year. On the flip side, it has ₩54.6b in cash leading to net debt of about ₩168.0b.

How Strong Is Shinsung E&GLtd's Balance Sheet?

We can see from the most recent balance sheet that Shinsung E&GLtd had liabilities of ₩321.2b falling due within a year, and liabilities of ₩41.7b due beyond that. On the other hand, it had cash of ₩54.6b and ₩107.5b worth of receivables due within a year. So its liabilities total ₩200.9b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Shinsung E&GLtd is worth ₩346.1b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Shinsung E&GLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Shinsung E&GLtd

In the last year Shinsung E&GLtd had a loss before interest and tax, and actually shrunk its revenue by 4.2%, to ₩565b. That's not what we would hope to see.

Caveat Emptor

Importantly, Shinsung E&GLtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩5.3b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩8.3b of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Shinsung E&GLtd has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.