Is Puloon Technology (KOSDAQ:094940) A Risky Investment?

Warren Buffett famously said, '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. Importantly, Puloon Technology Inc. (KOSDAQ:094940) does carry debt. But should shareholders be worried about its use of debt?

Our free stock report includes 1 warning sign investors should be aware of before investing in Puloon Technology. Read for free now.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Puloon Technology's Debt?

The chart below, which you can click on for greater detail, shows that Puloon Technology had ₩3.18b in debt in December 2024; about the same as the year before. However, it does have ₩9.86b in cash offsetting this, leading to net cash of ₩6.68b.

A Look At Puloon Technology's Liabilities

The latest balance sheet data shows that Puloon Technology had liabilities of ₩5.26b due within a year, and liabilities of ₩3.92b falling due after that. On the other hand, it had cash of ₩9.86b and ₩7.57b worth of receivables due within a year. So it actually has ₩8.25b more liquid assets than total liabilities.

This surplus suggests that Puloon Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Puloon Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Puloon Technology

Another good sign is that Puloon Technology has been able to increase its EBIT by 23% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Puloon Technology 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, a company can only pay off debt with cold hard cash, not accounting profits. While Puloon Technology 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. Over the last three years, Puloon Technology reported free cash flow worth 16% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Puloon Technology has net cash of ₩6.68b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 23% over the last year. So is Puloon Technology's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Puloon Technology you should know about.

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.