Is Hyundai Engineering & ConstructionLtd (KRX:000720) Using Debt In A Risky Way?

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 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. As with many other companies Hyundai Engineering & Construction Co.,Ltd. (KRX:000720) makes use of debt. But is this debt a concern to shareholders?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Hyundai Engineering & ConstructionLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Hyundai Engineering & ConstructionLtd had ₩3.25t of debt, an increase on ₩2.30t, over one year. However, its balance sheet shows it holds ₩5.41t in cash, so it actually has ₩2.16t net cash.

How Strong Is Hyundai Engineering & ConstructionLtd's Balance Sheet?

We can see from the most recent balance sheet that Hyundai Engineering & ConstructionLtd had liabilities of ₩15t falling due within a year, and liabilities of ₩2.67t due beyond that. Offsetting these obligations, it had cash of ₩5.41t as well as receivables valued at ₩11t due within 12 months. So it has liabilities totalling ₩658.7b more than its cash and near-term receivables, combined.

Given Hyundai Engineering & ConstructionLtd has a market capitalization of ₩4.30t, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Hyundai Engineering & ConstructionLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hyundai Engineering & ConstructionLtd 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 .

See our latest analysis for Hyundai Engineering & ConstructionLtd

In the last year Hyundai Engineering & ConstructionLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 10%, to ₩33t. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Hyundai Engineering & ConstructionLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Hyundai Engineering & ConstructionLtd lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩318b and booked a ₩169b accounting loss. With only ₩2.16t on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. To that end, you should be aware of the 1 warning sign we've spotted with Hyundai Engineering & ConstructionLtd .

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.

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

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.