These 4 Measures Indicate That Hanwha (KRX:000880) Is Using Debt Extensively

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Hanwha Corporation (KRX:000880) does use debt in its business. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hanwha's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Hanwha had ₩59t of debt, an increase on ₩27t, over one year. However, it does have ₩63t in cash offsetting this, leading to net cash of ₩3.43t.

How Strong Is Hanwha's Balance Sheet?

We can see from the most recent balance sheet that Hanwha had liabilities of ₩76t falling due within a year, and liabilities of ₩162t due beyond that. Offsetting this, it had ₩63t in cash and ₩8.80t in receivables that were due within 12 months. So its liabilities total ₩166t more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩5.59t company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Hanwha would likely require a major re-capitalisation if it had to pay its creditors today. Given that Hanwha has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

Check out our latest analysis for Hanwha

Pleasingly, Hanwha is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 221% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Hanwha 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Hanwha 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. In the last three years, Hanwha's free cash flow amounted to 23% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

Although Hanwha's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩3.43t. And we liked the look of last year's 221% year-on-year EBIT growth. So although we see some areas for improvement, we're not too worried about Hanwha's balance sheet. Over time, share prices tend to follow earnings per share, so if you're interested in Hanwha, you may well want to click here to check an interactive graph of its earnings per share history.

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.