Is HNK Machine Tool (KOSDAQ:101680) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that HNK Machine Tool Co., Ltd. (KOSDAQ:101680) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is HNK Machine Tool's Debt?

The image below, which you can click on for greater detail, shows that HNK Machine Tool had debt of ₩12.5b at the end of June 2025, a reduction from ₩14.7b over a year. However, it also had ₩9.61b in cash, and so its net debt is ₩2.89b.

How Strong Is HNK Machine Tool's Balance Sheet?

According to the last reported balance sheet, HNK Machine Tool had liabilities of ₩30.4b due within 12 months, and liabilities of ₩4.34b due beyond 12 months. Offsetting these obligations, it had cash of ₩9.61b as well as receivables valued at ₩2.37b due within 12 months. So it has liabilities totalling ₩22.8b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₩25.3b, so it does suggest shareholders should keep an eye on HNK Machine Tool's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is HNK Machine Tool's earnings that will influence how the balance sheet holds up in the future. 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.

See our latest analysis for HNK Machine Tool

Over 12 months, HNK Machine Tool made a loss at the EBIT level, and saw its revenue drop to ₩48b, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While HNK Machine Tool's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable ₩3.1b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₩3.7b. In the meantime, we consider the stock very 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. Case in point: We've spotted 2 warning signs for HNK Machine Tool you should be aware of.

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.