Wooyang HC (KOSDAQ:101970) Has A Rock Solid Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Wooyang HC Co., Ltd. (KOSDAQ:101970) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Wooyang HC's Debt?

The image below, which you can click on for greater detail, shows that Wooyang HC had debt of ₩23.5b at the end of December 2024, a reduction from ₩50.1b over a year. But on the other hand it also has ₩27.0b in cash, leading to a ₩3.53b net cash position.

How Healthy Is Wooyang HC's Balance Sheet?

The latest balance sheet data shows that Wooyang HC had liabilities of ₩62.7b due within a year, and liabilities of ₩25.1b falling due after that. Offsetting this, it had ₩27.0b in cash and ₩74.7b in receivables that were due within 12 months. So it actually has ₩13.9b more liquid assets than total liabilities.

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

View our latest analysis for Wooyang HC

Another good sign is that Wooyang HC has been able to increase its EBIT by 23% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Wooyang HC's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Wooyang HC may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Wooyang HC recorded free cash flow worth 54% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Wooyang HC has ₩3.53b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 23% over the last year. So is Wooyang HC's debt a risk? It doesn't seem so to us. 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 Wooyang HC you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.