Hyundai MobisLtd (KRX:012330) Could Easily Take On More Debt

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. As with many other companies Hyundai Mobis Co.,Ltd (KRX:012330) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

Check out our latest analysis for Hyundai MobisLtd

What Is Hyundai MobisLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Hyundai MobisLtd had ₩2.67t of debt, an increase on ₩2.45t, over one year. But it also has ₩9.96t in cash to offset that, meaning it has ₩7.29t net cash.

A Look At Hyundai MobisLtd's Liabilities

The latest balance sheet data shows that Hyundai MobisLtd had liabilities of ₩11t due within a year, and liabilities of ₩7.45t falling due after that. Offsetting these obligations, it had cash of ₩9.96t as well as receivables valued at ₩9.68t due within 12 months. So it can boast ₩708.4b more liquid assets than total liabilities.

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

The good news is that Hyundai MobisLtd has increased its EBIT by 7.3% over twelve months, which should ease any concerns about debt repayment. 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 Hyundai MobisLtd'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Hyundai MobisLtd 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, Hyundai MobisLtd generated free cash flow amounting to a very robust 89% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hyundai MobisLtd has ₩7.29t in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩1.8t, being 89% of its EBIT. So is Hyundai MobisLtd's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Hyundai MobisLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.