These 4 Measures Indicate That Kia (KRX:000270) Is Using Debt Reasonably Well

Warren Buffett famously said, '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. Importantly, Kia Corporation (KRX:000270) does carry debt. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for Kia in our free report.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Kia's Net Debt?

The image below, which you can click on for greater detail, shows that Kia had debt of ₩3.23t at the end of December 2024, a reduction from ₩3.80t over a year. But it also has ₩22t in cash to offset that, meaning it has ₩19t net cash.

How Healthy Is Kia's Balance Sheet?

The latest balance sheet data shows that Kia had liabilities of ₩27t due within a year, and liabilities of ₩9.94t falling due after that. Offsetting these obligations, it had cash of ₩22t as well as receivables valued at ₩6.84t due within 12 months. So it has liabilities totalling ₩8.01t more than its cash and near-term receivables, combined.

Kia has a very large market capitalization of ₩35t, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Kia boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Kia

The good news is that Kia has increased its EBIT by 9.1% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kia can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Kia 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. During the last three years, Kia produced sturdy free cash flow equating to 74% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While Kia does have more liabilities than liquid assets, it also has net cash of ₩19t. The cherry on top was that in converted 74% of that EBIT to free cash flow, bringing in ₩7.9t. So is Kia's debt a risk? It doesn't seem so to us. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Kia's dividend history, without delay!

When all is said and done, sometimes its easier to focus on companies that don't even need 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 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.