Hyundai MobisLtd (KRX:012330) Has A Rock Solid Balance Sheet

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.' 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. We note that Hyundai Mobis Co.,Ltd (KRX:012330) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

View 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 Hyundai MobisLtd had ₩2.72t of debt in June 2024, down from ₩3.24t, one year before. But on the other hand it also has ₩11t in cash, leading to a ₩7.96t net cash position.

A Look At Hyundai MobisLtd's Liabilities

We can see from the most recent balance sheet that Hyundai MobisLtd had liabilities of ₩13t falling due within a year, and liabilities of ₩7.26t due beyond that. Offsetting this, it had ₩11t in cash and ₩9.70t in receivables that were due within 12 months. So it actually has ₩530.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Hyundai MobisLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Hyundai MobisLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

The good news is that Hyundai MobisLtd has increased its EBIT by 3.2% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hyundai MobisLtd 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, 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. Happily for any shareholders, Hyundai MobisLtd actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hyundai MobisLtd has ₩7.96t in net cash and a decent-looking balance sheet. The cherry on top was that in converted 104% of that EBIT to free cash flow, bringing in ₩3.4t. So we don't think Hyundai MobisLtd's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Hyundai MobisLtd you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.