We Think Dongbang Transport Logistics (KRX:004140) Is Taking Some Risk With Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Dongbang Transport Logistics Co., Ltd. (KRX:004140) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Dongbang Transport Logistics Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Dongbang Transport Logistics had ₩269.6b of debt, an increase on ₩229.1b, over one year. However, it does have ₩63.1b in cash offsetting this, leading to net debt of about ₩206.5b.

A Look At Dongbang Transport Logistics' Liabilities

According to the last reported balance sheet, Dongbang Transport Logistics had liabilities of ₩234.0b due within 12 months, and liabilities of ₩256.8b due beyond 12 months. On the other hand, it had cash of ₩63.1b and ₩139.5b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩288.1b.

The deficiency here weighs heavily on the ₩130.0b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Dongbang Transport Logistics would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for Dongbang Transport Logistics

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While Dongbang Transport Logistics's debt to EBITDA ratio (2.8) suggests that it uses some debt, its interest cover is very weak, at 2.3, suggesting high leverage. It seems clear that the cost of borrowing money is negatively impacting returns for shareholders, of late. Notably, Dongbang Transport Logistics's EBIT was pretty flat over the last year, which isn't ideal given the debt load. There's no doubt that we learn most about debt from the balance sheet. But it is Dongbang Transport Logistics'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, Dongbang Transport Logistics's free cash flow amounted to 37% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

We'd go so far as to say Dongbang Transport Logistics's level of total liabilities was disappointing. But at least its EBIT growth rate is not so bad. It's also worth noting that Dongbang Transport Logistics is in the Infrastructure industry, which is often considered to be quite defensive. Overall, it seems to us that Dongbang Transport Logistics's balance sheet is really quite a risk to the business. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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 example, we've discovered 4 warning signs for Dongbang Transport Logistics (1 is a bit concerning!) that you should be aware of before investing here.

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.