Woojin (KRX:105840) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, '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 note that Woojin Inc. (KRX:105840) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Woojin

What Is Woojin's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Woojin had ₩45.3b of debt, an increase on ₩42.4b, over one year. However, because it has a cash reserve of ₩26.4b, its net debt is less, at about ₩19.0b.

How Strong Is Woojin's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Woojin had liabilities of ₩52.9b due within 12 months and liabilities of ₩12.9b due beyond that. On the other hand, it had cash of ₩26.4b and ₩7.97b worth of receivables due within a year. So it has liabilities totalling ₩31.5b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Woojin is worth ₩88.3b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Woojin will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Woojin reported revenue of ₩86b, which is a gain of 6.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Woojin produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩2.8b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩1.6b of cash over the last year. So to be blunt we think it 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. Case in point: We've spotted 3 warning signs for Woojin 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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