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

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 can see that Hyundai Engineering & Construction Co.,Ltd. (KRX:000720) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hyundai Engineering & ConstructionLtd's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Hyundai Engineering & ConstructionLtd had debt of ₩3.22t, up from ₩2.69t in one year. However, it does have ₩4.23t in cash offsetting this, leading to net cash of ₩1.01t.

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

Zooming in on the latest balance sheet data, we can see that Hyundai Engineering & ConstructionLtd had liabilities of ₩15t due within 12 months and liabilities of ₩2.45t due beyond that. Offsetting these obligations, it had cash of ₩4.23t as well as receivables valued at ₩12t due within 12 months. So its liabilities total ₩527.0b more than the combination of its cash and short-term receivables.

Of course, Hyundai Engineering & ConstructionLtd has a market capitalization of ₩8.09t, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Hyundai Engineering & ConstructionLtd

Over 12 months, Hyundai Engineering & ConstructionLtd saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Hyundai Engineering & ConstructionLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Hyundai Engineering & ConstructionLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩323b of cash and made a loss of ₩202b. With only ₩1.01t 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. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Hyundai Engineering & ConstructionLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.