Puloon Technology (KOSDAQ:094940) Seems To Use Debt Quite Sensibly

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Puloon Technology Inc. (KOSDAQ:094940) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Puloon Technology's Debt?

As you can see below, Puloon Technology had ₩3.18b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds ₩9.76b in cash, so it actually has ₩6.58b net cash.

A Look At Puloon Technology's Liabilities

We can see from the most recent balance sheet that Puloon Technology had liabilities of ₩5.01b falling due within a year, and liabilities of ₩3.90b due beyond that. On the other hand, it had cash of ₩9.76b and ₩5.70b worth of receivables due within a year. So it actually has ₩6.56b more liquid assets than total liabilities.

This short term liquidity is a sign that Puloon Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. 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

In fact Puloon Technology's saving grace is its low debt levels, because its EBIT has tanked 33% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is Puloon Technology'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Puloon Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Puloon Technology's free cash flow amounted to 45% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Puloon Technology has ₩6.58b in net cash and a decent-looking balance sheet. So we are not troubled with Puloon Technology's debt use. 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 instance, we've identified 1 warning sign for Puloon Technology that you should be aware of.

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.