JOONGANG ADVANCED MATERIALS (KOSDAQ:051980) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 JOONGANG ADVANCED MATERIALS Co., Ltd. (KOSDAQ:051980) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is JOONGANG ADVANCED MATERIALS's Debt?

As you can see below, JOONGANG ADVANCED MATERIALS had ₩20.8b of debt at December 2024, down from ₩60.3b a year prior. But on the other hand it also has ₩32.7b in cash, leading to a ₩12.0b net cash position.

How Healthy Is JOONGANG ADVANCED MATERIALS' Balance Sheet?

According to the last reported balance sheet, JOONGANG ADVANCED MATERIALS had liabilities of ₩9.42b due within 12 months, and liabilities of ₩18.4b due beyond 12 months. Offsetting these obligations, it had cash of ₩32.7b as well as receivables valued at ₩27.1b due within 12 months. So it can boast ₩31.9b 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. Simply put, the fact that JOONGANG ADVANCED MATERIALS has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. 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

In the last year JOONGANG ADVANCED MATERIALS had a loss before interest and tax, and actually shrunk its revenue by 29%, to ₩19b. 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 ₩6.4b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 JOONGANG ADVANCED MATERIALS (1 can't be ignored) you should be aware of.

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.

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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.