DB HiTek (KRX:000990) Could Easily Take On More Debt
Warren Buffett famously said, '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 note that DB HiTek CO., LTD. (KRX:000990) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is DB HiTek's Net Debt?
As you can see below, at the end of September 2025, DB HiTek had ₩337.5b of debt, up from ₩139.8b a year ago. Click the image for more detail. But on the other hand it also has ₩1.03t in cash, leading to a ₩689.4b net cash position.
How Healthy Is DB HiTek's Balance Sheet?
The latest balance sheet data shows that DB HiTek had liabilities of ₩488.2b due within a year, and liabilities of ₩194.8b falling due after that. On the other hand, it had cash of ₩1.03t and ₩249.1b worth of receivables due within a year. So it actually has ₩593.1b more liquid assets than total liabilities.
This surplus suggests that DB HiTek is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, DB HiTek boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for DB HiTek
Another good sign is that DB HiTek has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if DB HiTek can strengthen its balance sheet over time. 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. DB HiTek 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, DB HiTek produced sturdy free cash flow equating to 70% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that DB HiTek has net cash of ₩689.4b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₩256b, being 70% of its EBIT. So we don't think DB HiTek's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for DB HiTek 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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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.