These 4 Measures Indicate That Park Systems (KOSDAQ:140860) Is Using Debt Reasonably Well

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. Importantly, Park Systems Corp. (KOSDAQ:140860) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Park Systems's Net Debt?

As you can see below, at the end of June 2025, Park Systems had ₩53.6b of debt, up from ₩28.9b a year ago. Click the image for more detail. However, it does have ₩74.1b in cash offsetting this, leading to net cash of ₩20.5b.

How Strong Is Park Systems' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Park Systems had liabilities of ₩59.7b due within 12 months and liabilities of ₩36.0b due beyond that. Offsetting these obligations, it had cash of ₩74.1b as well as receivables valued at ₩33.1b due within 12 months. So it can boast ₩11.6b more liquid assets than total liabilities.

Having regard to Park Systems' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩1.78t company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Park Systems boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Park Systems

In addition to that, we're happy to report that Park Systems has boosted its EBIT by 77%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Park Systems's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Park Systems 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. Looking at the most recent three years, Park Systems recorded free cash flow of 25% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Park Systems has net cash of ₩20.5b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 77% over the last year. So we don't think Park Systems's use of debt is risky. 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. For example - Park Systems has 1 warning sign we think you should be aware of.

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.