Health Check: How Prudently Does JOONGANG ADVANCED MATERIALS (KOSDAQ:051980) 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, JOONGANG ADVANCED MATERIALS Co., Ltd. (KOSDAQ:051980) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is JOONGANG ADVANCED MATERIALS's Debt?

The image below, which you can click on for greater detail, shows that JOONGANG ADVANCED MATERIALS had debt of ₩18.9b at the end of June 2025, a reduction from ₩38.9b over a year. However, its balance sheet shows it holds ₩47.2b in cash, so it actually has ₩28.3b net cash.

How Strong Is JOONGANG ADVANCED MATERIALS' Balance Sheet?

We can see from the most recent balance sheet that JOONGANG ADVANCED MATERIALS had liabilities of ₩7.71b falling due within a year, and liabilities of ₩18.1b due beyond that. On the other hand, it had cash of ₩47.2b and ₩6.11b worth of receivables due within a year. So it actually has ₩27.6b more liquid assets than total liabilities.

This short term liquidity is a sign that JOONGANG ADVANCED MATERIALS could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, JOONGANG ADVANCED MATERIALS boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is JOONGANG ADVANCED MATERIALS'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.

View our latest analysis for JOONGANG ADVANCED MATERIALS

Over 12 months, JOONGANG ADVANCED MATERIALS made a loss at the EBIT level, and saw its revenue drop to ₩17b, which is a fall of 36%. To be frank that doesn't bode well.

So How Risky Is JOONGANG ADVANCED MATERIALS?

While JOONGANG ADVANCED MATERIALS lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩9.0b. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that JOONGANG ADVANCED MATERIALS is showing 2 warning signs in our investment analysis , you should know about...

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.