Health Check: How Prudently Does Kec (KRX:092220) Use Debt?

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. Importantly, Kec Corporation (KRX:092220) does carry debt. But should shareholders be worried about its use of debt?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Why Does Debt Bring Risk?

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. 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. 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 Kec's Net Debt?

As you can see below, at the end of December 2024, Kec had ₩45.4b of debt, up from ₩40.6b a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩119.6b in cash, so it actually has ₩74.2b net cash.

How Healthy Is Kec's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kec had liabilities of ₩73.3b due within 12 months and liabilities of ₩28.1b due beyond that. Offsetting these obligations, it had cash of ₩119.6b as well as receivables valued at ₩29.8b due within 12 months. So it actually has ₩48.1b more liquid assets than total liabilities.

This surplus strongly suggests that Kec has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Kec has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Kec 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 .

View our latest analysis for Kec

In the last year Kec wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to ₩243b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Kec?

While Kec lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩19b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Kec .

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.

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.