Health Check: How Prudently Does RYUK-IL C&S.Ltd (KOSDAQ:191410) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that RYUK-IL C&S.,Ltd. (KOSDAQ:191410) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is RYUK-IL C&S.Ltd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 RYUK-IL C&S.Ltd had debt of ₩26.2b, up from ₩11.4b in one year. However, it also had ₩4.92b in cash, and so its net debt is ₩21.3b.

How Healthy Is RYUK-IL C&S.Ltd's Balance Sheet?

According to the last reported balance sheet, RYUK-IL C&S.Ltd had liabilities of ₩29.1b due within 12 months, and liabilities of ₩5.51b due beyond 12 months. Offsetting these obligations, it had cash of ₩4.92b as well as receivables valued at ₩7.28b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩22.4b.

Given this deficit is actually higher than the company's market capitalization of ₩17.1b, we think shareholders really should watch RYUK-IL C&S.Ltd's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since RYUK-IL C&S.Ltd 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.

Check out our latest analysis for RYUK-IL C&S.Ltd

In the last year RYUK-IL C&S.Ltd wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to ₩33b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, RYUK-IL C&S.Ltd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩1.2b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₩1.3b and the profit of ₩109m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for RYUK-IL C&S.Ltd (1 is significant) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.