Is Pan Ocean (KRX:028670) Using Too Much 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.' 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 Pan Ocean Co., Ltd. (KRX:028670) 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 Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Pan Ocean's Net Debt?

As you can see below, Pan Ocean had ₩339.1b of debt at March 2025, down from ₩401.9b a year prior. However, it does have ₩1.26t in cash offsetting this, leading to net cash of ₩921.2b.

How Healthy Is Pan Ocean's Balance Sheet?

The latest balance sheet data shows that Pan Ocean had liabilities of ₩1.52t due within a year, and liabilities of ₩3.79t falling due after that. Offsetting these obligations, it had cash of ₩1.26t as well as receivables valued at ₩315.0b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩3.73t.

This deficit casts a shadow over the ₩2.22t company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Pan Ocean would likely require a major re-capitalisation if it had to pay its creditors today. Pan Ocean boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

Check out our latest analysis for Pan Ocean

It is well worth noting that Pan Ocean's EBIT shot up like bamboo after rain, gaining 31% in the last twelve months. That'll make it easier to manage its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Pan Ocean'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Pan Ocean has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Pan Ocean actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Pan Ocean does have more liabilities than liquid assets, it also has net cash of ₩921.2b. The cherry on top was that in converted 106% of that EBIT to free cash flow, bringing in ₩429b. So we don't have any problem with Pan Ocean's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Pan Ocean 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.