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Here's Why SuNam (KOSDAQ:294630) Can Afford Some Debt

Simply Wall St · 09/01/2025 23:11

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that SuNam Co., Ltd. (KOSDAQ:294630) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is SuNam's Debt?

As you can see below, at the end of June 2025, SuNam had ₩3.10b of debt, up from ₩1.80b a year ago. Click the image for more detail. However, it does have ₩982.5m in cash offsetting this, leading to net debt of about ₩2.12b.

debt-equity-history-analysis
KOSDAQ:A294630 Debt to Equity History September 1st 2025

How Strong Is SuNam's Balance Sheet?

According to the last reported balance sheet, SuNam had liabilities of ₩5.02b due within 12 months, and liabilities of ₩1.33b due beyond 12 months. Offsetting these obligations, it had cash of ₩982.5m as well as receivables valued at ₩359.0m due within 12 months. So it has liabilities totalling ₩5.01b more than its cash and near-term receivables, combined.

Since publicly traded SuNam shares are worth a total of ₩67.5b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since SuNam will need earnings to service that debt. 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.

Check out our latest analysis for SuNam

Over 12 months, SuNam made a loss at the EBIT level, and saw its revenue drop to ₩2.1b, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

Not only did SuNam's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₩4.4b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩2.7b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. We've identified 4 warning signs with SuNam (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.