The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, creates no bones about it when he states ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ 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 LS Corp. (KRX:006260) does utilize debt in its business. But should shareholders be worried about its utilize of debt?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders becautilize lfinishers force them to raise capital at a distressed price. 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 believe about a company’s utilize of debt, we first see at cash and debt toobtainher.
What Is LS’s Net Debt?
The image below, which you can click on for greater detail, displays that at September 2025 LS had debt of ₩9.22t, up from ₩7.95t in one year. On the flip side, it has ₩2.67t in cash leading to net debt of about ₩6.55t.
How Healthy Is LS’ Balance Sheet?
The latest balance sheet data displays that LS had liabilities of ₩12t due within a year, and liabilities of ₩3.63t falling due after that. On the other hand, it had cash of ₩2.67t and ₩3.68t worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩9.31t.
The deficiency here weighs heavily on the ₩5.17t 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 believe shareholders necessary to watch this one closely. After all, LS would likely require a major re-capitalisation if it had to pay its creditors today.
View our latest analysis for LS
We measure a company’s debt load relative to its earnings power by seeing 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.
LS has a debt to EBITDA ratio of 4.1 and its EBIT covered its interest expense 3.4 times. This suggests that while the debt levels are significant, we’d stop short of calling them problematic. However, one redeeming factor is that LS grew its EBIT at 14% over the last 12 months, boosting its ability to handle its debt. There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if LS can strengthen its balance sheet over time. So if you want to see what the professionals believe, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Considering the last three years, LS actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expfinishiture will produce free cash flow in the future.
Our View
On the face of it, LS’s conversion of EBIT to free cash flow left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its EBIT growth rate is a good sign, and creates us more optimistic. We’re quite clear that we consider LS to be really rather risky, as a result of its balance sheet health. 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 state. 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. These risks can be hard to spot. Every company has them, and we’ve spotted 2 warning signs for LS (of which 1 is significant!) you should know about.
When all is declared and done, sometimes its simpler to focus on companies that don’t even necessary 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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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