JOONGANG ADVANCED MATERIALS (KOSDAQ:051980) Is Carrying A Fair Bit Of 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that JOONGANG ADVANCED MATERIALS Co., Ltd (KOSDAQ:051980) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for JOONGANG ADVANCED MATERIALS

What Is JOONGANG ADVANCED MATERIALS's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 JOONGANG ADVANCED MATERIALS had ₩76.9b of debt, an increase on ₩20.0b, over one year. On the flip side, it has ₩26.6b in cash leading to net debt of about ₩50.3b.

How Healthy Is JOONGANG ADVANCED MATERIALS' Balance Sheet?

The latest balance sheet data shows that JOONGANG ADVANCED MATERIALS had liabilities of ₩64.3b due within a year, and liabilities of ₩19.5b falling due after that. Offsetting these obligations, it had cash of ₩26.6b as well as receivables valued at ₩20.7b due within 12 months. So it has liabilities totalling ₩36.6b more than its cash and near-term receivables, combined.

Since publicly traded JOONGANG ADVANCED MATERIALS shares are worth a total of ₩1.17t, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, JOONGANG ADVANCED MATERIALS saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, JOONGANG ADVANCED MATERIALS had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩1.0b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩58b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. For example, we've discovered 4 warning signs for JOONGANG ADVANCED MATERIALS (3 are potentially serious!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com