Nasdaq
华尔街日报Is Lotte Chemical (KRX:011170) A Risky Investment?
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. We note that Lotte Chemical Corporation (KRX:011170) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Lotte Chemical's Net Debt?
As you can see below, Lotte Chemical had ₩10t of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of ₩3.38t, its net debt is less, at about ₩6.95t.
How Strong Is Lotte Chemical's Balance Sheet?
The latest balance sheet data shows that Lotte Chemical had liabilities of ₩8.13t due within a year, and liabilities of ₩6.38t falling due after that. Offsetting these obligations, it had cash of ₩3.38t as well as receivables valued at ₩1.70b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩11t.
This deficit casts a shadow over the ₩3.33t company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Lotte Chemical would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Lotte Chemical's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
View our latest analysis for Lotte Chemical
In the last year Lotte Chemical had a loss before interest and tax, and actually shrunk its revenue by 4.5%, to ₩19t. We would much prefer see growth.
Caveat Emptor
Importantly, Lotte Chemical had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩724b. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through ₩634b in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Lotte Chemical .
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.