We Think Sebang Global Battery (KRX:004490) Can Stay On Top Of Its 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Sebang Global Battery Co., Ltd. (KRX:004490) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Sebang Global Battery

How Much Debt Does Sebang Global Battery Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Sebang Global Battery had debt of ₩224.8b, up from ₩167.3b in one year. But on the other hand it also has ₩385.9b in cash, leading to a ₩161.0b net cash position.

How Strong Is Sebang Global Battery's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sebang Global Battery had liabilities of ₩553.4b due within 12 months and liabilities of ₩49.2b due beyond that. On the other hand, it had cash of ₩385.9b and ₩373.7b worth of receivables due within a year. So it can boast ₩156.9b more liquid assets than total liabilities.

This surplus suggests that Sebang Global Battery has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Sebang Global Battery boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Sebang Global Battery grew its EBIT by 116% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Sebang Global Battery will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Sebang Global Battery 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. Considering the last three years, Sebang Global Battery actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sebang Global Battery has ₩161.0b in net cash and a decent-looking balance sheet. And we liked the look of last year's 116% year-on-year EBIT growth. So is Sebang Global Battery'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. For instance, we've identified 1 warning sign for Sebang Global Battery that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com