Is Taeyang Metal Industrial (KRX:004100) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Taeyang Metal Industrial Co., Ltd. (KRX:004100) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Taeyang Metal Industrial's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Taeyang Metal Industrial had debt of ₩204.7b, up from ₩185.3b in one year. On the flip side, it has ₩10.2b in cash leading to net debt of about ₩194.5b.

A Look At Taeyang Metal Industrial's Liabilities

The latest balance sheet data shows that Taeyang Metal Industrial had liabilities of ₩336.6b due within a year, and liabilities of ₩96.4b falling due after that. On the other hand, it had cash of ₩10.2b and ₩97.0b worth of receivables due within a year. So it has liabilities totalling ₩325.8b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₩75.2b 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 think shareholders need to watch this one closely. After all, Taeyang Metal Industrial would likely require a major re-capitalisation if it had to pay its creditors today.

See our latest analysis for Taeyang Metal Industrial

We measure a company's debt load relative to its earnings power by looking 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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Weak interest cover of 1.0 times and a disturbingly high net debt to EBITDA ratio of 7.7 hit our confidence in Taeyang Metal Industrial like a one-two punch to the gut. The debt burden here is substantial. Worse, Taeyang Metal Industrial's EBIT was down 28% over the last year. If earnings keep going like that over the long term, it has a snowball's chance in hell of paying off that debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Taeyang Metal Industrial will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, Taeyang Metal Industrial burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

To be frank both Taeyang Metal Industrial's EBIT growth rate and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. And even its interest cover fails to inspire much confidence. Considering everything we've mentioned above, it's fair to say that Taeyang Metal Industrial is carrying heavy debt load. If you play with fire you risk getting burnt, so we'd probably give this stock a wide berth. 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. Be aware that Taeyang Metal Industrial is showing 1 warning sign in our investment analysis , you should know about...

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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.