Does KORCHIP (KOSDAQ:126730) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 KORCHIP Inc. (KOSDAQ:126730) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is KORCHIP's Debt?

You can click the graphic below for the historical numbers, but it shows that KORCHIP had ₩3.60b of debt in June 2025, down from ₩6.24b, one year before. However, it does have ₩20.9b in cash offsetting this, leading to net cash of ₩17.3b.

How Strong Is KORCHIP's Balance Sheet?

According to the last reported balance sheet, KORCHIP had liabilities of ₩4.18b due within 12 months, and liabilities of ₩5.46b due beyond 12 months. Offsetting these obligations, it had cash of ₩20.9b as well as receivables valued at ₩5.75b due within 12 months. So it actually has ₩17.1b more liquid assets than total liabilities.

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

See our latest analysis for KORCHIP

Notably KORCHIP's EBIT was pretty flat over the last year. We would prefer to see some earnings growth, because that always helps diminish debt. There's no doubt that we learn most about debt from the balance sheet. But it is KORCHIP'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. KORCHIP 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, KORCHIP's free cash flow amounted to 40% 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 KORCHIP has ₩17.3b in net cash and a decent-looking balance sheet. So we don't have any problem with KORCHIP's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for KORCHIP you should be aware of, and 1 of them makes us a bit uncomfortable.

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.