These 4 Measures Indicate That Taihan Cable & Solution (KRX:001440) Is Using Debt Reasonably Well

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.' 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 Taihan Cable & Solution Co., Ltd. (KRX:001440) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

Check out our latest analysis for Taihan Cable & Solution

What Is Taihan Cable & Solution's Net Debt?

The chart below, which you can click on for greater detail, shows that Taihan Cable & Solution had ₩448.4b in debt in June 2024; about the same as the year before. But it also has ₩632.7b in cash to offset that, meaning it has ₩184.3b net cash.

How Strong Is Taihan Cable & Solution's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Taihan Cable & Solution had liabilities of ₩861.3b due within 12 months and liabilities of ₩239.7b due beyond that. Offsetting this, it had ₩632.7b in cash and ₩522.7b in receivables that were due within 12 months. So it actually has ₩54.3b more liquid assets than total liabilities.

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

On top of that, Taihan Cable & Solution grew its EBIT by 73% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Taihan Cable & Solution's ability to maintain a healthy balance sheet going forward. 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 Taihan Cable & Solution 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. During the last three years, Taihan Cable & Solution burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Taihan Cable & Solution has ₩184.3b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 73% over the last year. So we are not troubled with Taihan Cable & Solution's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Taihan Cable & Solution , and understanding them should be part of your investment process.

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.