Is DMOA (KOSDAQ:016670) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies DMOA Co., Ltd (KOSDAQ:016670) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is DMOA's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 DMOA had debt of ₩2.93b, up from none in one year. However, its balance sheet shows it holds ₩34.8b in cash, so it actually has ₩31.8b net cash.

How Healthy Is DMOA's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DMOA had liabilities of ₩43.9b due within 12 months and liabilities of ₩966.6m due beyond that. Offsetting these obligations, it had cash of ₩34.8b as well as receivables valued at ₩36.7b due within 12 months. So it can boast ₩26.6b more liquid assets than total liabilities.

This excess liquidity is a great indication that DMOA's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, DMOA boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for DMOA

The good news is that DMOA has increased its EBIT by 7.3% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is DMOA's earnings that will influence how the balance sheet holds up in the future. 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While DMOA 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. Happily for any shareholders, DMOA actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case DMOA has ₩31.8b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩12b, being 192% of its EBIT. When it comes to DMOA's debt, we sufficiently relaxed that our mind turns to the jacuzzi. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with DMOA (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.