VM (KOSDAQ:089970) Seems To Use Debt Rather Sparingly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 VM Inc. (KOSDAQ:089970) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 VM's Debt?

As you can see below, at the end of September 2025, VM had ₩10.3b of debt, up from ₩8.26b a year ago. Click the image for more detail. However, it does have ₩128.6b in cash offsetting this, leading to net cash of ₩118.3b.

A Look At VM's Liabilities

According to the last reported balance sheet, VM had liabilities of ₩30.2b due within 12 months, and liabilities of ₩2.92b due beyond 12 months. On the other hand, it had cash of ₩128.6b and ₩10.0b worth of receivables due within a year. So it can boast ₩105.5b more liquid assets than total liabilities.

This surplus suggests that VM 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, VM boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for VM

It was also good to see that despite losing money on the EBIT line last year, VM turned things around in the last 12 months, delivering and EBIT of ₩14b. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine VM's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While VM has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, VM actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that VM has net cash of ₩118.3b, as well as more liquid assets than liabilities. The cherry on top was that in converted 183% of that EBIT to free cash flow, bringing in ₩25b. So is VM's debt a risk? It doesn't seem so to us. 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. We've identified 2 warning signs with VM (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.