Is Spigen KoreaLtd (KOSDAQ:192440) Using Too Much Debt?

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.' 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 can see that Spigen Korea Co.,Ltd (KOSDAQ:192440) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Spigen KoreaLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Spigen KoreaLtd had ₩16.1b of debt, an increase on none, over one year. However, its balance sheet shows it holds ₩138.9b in cash, so it actually has ₩122.8b net cash.

How Strong Is Spigen KoreaLtd's Balance Sheet?

According to the last reported balance sheet, Spigen KoreaLtd had liabilities of ₩37.7b due within 12 months, and liabilities of ₩8.02b due beyond 12 months. On the other hand, it had cash of ₩138.9b and ₩17.1b worth of receivables due within a year. So it can boast ₩110.3b more liquid assets than total liabilities.

This luscious liquidity implies that Spigen KoreaLtd's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Spigen KoreaLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Spigen KoreaLtd

In fact Spigen KoreaLtd's saving grace is its low debt levels, because its EBIT has tanked 22% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Spigen KoreaLtd'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Spigen KoreaLtd 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. During the last three years, Spigen KoreaLtd burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Spigen KoreaLtd has net cash of ₩122.8b, as well as more liquid assets than liabilities. So we don't have any problem with Spigen KoreaLtd's use of debt. 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 2 warning signs for Spigen KoreaLtd (1 doesn't sit too well with us) you should be aware of.

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.