These 4 Measures Indicate That UANGEL (KRX:072130) Is Using Debt Reasonably Well

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. We note that UANGEL Corporation (KRX:072130) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is UANGEL's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 UANGEL had ₩3.00b of debt, an increase on ₩1.00b, over one year. But it also has ₩15.7b in cash to offset that, meaning it has ₩12.7b net cash.

How Healthy Is UANGEL's Balance Sheet?

The latest balance sheet data shows that UANGEL had liabilities of ₩8.75b due within a year, and liabilities of ₩2.44b falling due after that. Offsetting this, it had ₩15.7b in cash and ₩7.72b in receivables that were due within 12 months. So it can boast ₩12.2b more liquid assets than total liabilities.

This excess liquidity suggests that UANGEL 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 UANGEL has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for UANGEL

Although UANGEL made a loss at the EBIT level, last year, it was also good to see that it generated ₩799m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since UANGEL 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. UANGEL 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. During the last year, UANGEL burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case UANGEL has ₩12.7b in net cash and a decent-looking balance sheet. So we are not troubled with UANGEL'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 instance, we've identified 3 warning signs for UANGEL that you should be aware of.

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.