These 4 Measures Indicate That HD Korea Shipbuilding & Offshore Engineering (KRX:009540) Is Using Debt Safely

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 HD Korea Shipbuilding & Offshore Engineering Co., Ltd. (KRX:009540) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does HD Korea Shipbuilding & Offshore Engineering Carry?

As you can see below, HD Korea Shipbuilding & Offshore Engineering had ₩1.29t of debt at June 2025, down from ₩2.32t a year prior. However, its balance sheet shows it holds ₩8.22t in cash, so it actually has ₩6.93t net cash.

How Strong Is HD Korea Shipbuilding & Offshore Engineering's Balance Sheet?

According to the last reported balance sheet, HD Korea Shipbuilding & Offshore Engineering had liabilities of ₩20t due within 12 months, and liabilities of ₩2.09t due beyond 12 months. Offsetting this, it had ₩8.22t in cash and ₩1.64t in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩12t.

HD Korea Shipbuilding & Offshore Engineering has a very large market capitalization of ₩30t, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, HD Korea Shipbuilding & Offshore Engineering also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for HD Korea Shipbuilding & Offshore Engineering

Better yet, HD Korea Shipbuilding & Offshore Engineering grew its EBIT by 253% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 HD Korea Shipbuilding & Offshore Engineering'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. HD Korea Shipbuilding & Offshore Engineering may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, HD Korea Shipbuilding & Offshore Engineering actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although HD Korea Shipbuilding & Offshore Engineering's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩6.93t. And it impressed us with free cash flow of ₩4.3t, being 185% of its EBIT. So we don't think HD Korea Shipbuilding & Offshore Engineering's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in HD Korea Shipbuilding & Offshore Engineering, you may well want to click here to check an interactive graph of its earnings per share history.

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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