Does Hyundai G.F. Holdings (KRX:005440) Have A Healthy Balance Sheet?

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.' 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 note that Hyundai G.F. Holdings Co., Ltd. (KRX:005440) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Hyundai G.F. Holdings Carry?

As you can see below, at the end of December 2024, Hyundai G.F. Holdings had ₩669.4b of debt, up from ₩220.2b a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩1.37t in cash, so it actually has ₩705.5b net cash.

How Healthy Is Hyundai G.F. Holdings' Balance Sheet?

We can see from the most recent balance sheet that Hyundai G.F. Holdings had liabilities of ₩2.02t falling due within a year, and liabilities of ₩1.07t due beyond that. Offsetting this, it had ₩1.37t in cash and ₩1.02t in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩694.6b.

This deficit is considerable relative to its market capitalization of ₩940.1b, so it does suggest shareholders should keep an eye on Hyundai G.F. Holdings' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Hyundai G.F. Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Hyundai G.F. Holdings

It was also good to see that despite losing money on the EBIT line last year, Hyundai G.F. Holdings turned things around in the last 12 months, delivering and EBIT of ₩194b. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Hyundai G.F. Holdings'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Hyundai G.F. Holdings 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. Over the last year, Hyundai G.F. Holdings actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Hyundai G.F. Holdings does have more liabilities than liquid assets, it also has net cash of ₩705.5b. And it impressed us with free cash flow of ₩200b, being 103% of its EBIT. So we are not troubled with Hyundai G.F. Holdings's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Hyundai G.F. Holdings (1 is a bit concerning!) that you should be aware of before investing here.

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.

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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.