Here's Why Enchem (KOSDAQ:348370) Can Afford Some 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.' 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. As with many other companies Enchem Co., Ltd. (KOSDAQ:348370) makes use of debt. But is this debt a concern to shareholders?
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. If things get really bad, the lenders can take control of the business. 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. 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 Enchem's Net Debt?
The image below, which you can click on for greater detail, shows that Enchem had debt of ₩271.2b at the end of September 2025, a reduction from ₩309.1b over a year. However, it also had ₩82.0b in cash, and so its net debt is ₩189.2b.
How Strong Is Enchem's Balance Sheet?
We can see from the most recent balance sheet that Enchem had liabilities of ₩493.6b falling due within a year, and liabilities of ₩47.4b due beyond that. On the other hand, it had cash of ₩82.0b and ₩117.9b worth of receivables due within a year. So it has liabilities totalling ₩341.2b more than its cash and near-term receivables, combined.
Enchem has a market capitalization of ₩1.46t, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Enchem'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.
View our latest analysis for Enchem
Over 12 months, Enchem made a loss at the EBIT level, and saw its revenue drop to ₩300b, which is a fall of 12%. We would much prefer see growth.
Caveat Emptor
While Enchem's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩114b 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 ₩33b 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. To that end, you should learn about the 2 warning signs we've spotted with Enchem (including 1 which can't be ignored) .
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.