Would Hd Hyundai MipoLtd (KRX:010620) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies Hd Hyundai Mipo Co.,Ltd. (KRX:010620) makes use of debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Hd Hyundai MipoLtd

What Is Hd Hyundai MipoLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Hd Hyundai MipoLtd had ₩574.2b of debt, an increase on ₩107.7b, over one year. However, because it has a cash reserve of ₩349.1b, its net debt is less, at about ₩225.1b.

How Strong Is Hd Hyundai MipoLtd's Balance Sheet?

The latest balance sheet data shows that Hd Hyundai MipoLtd had liabilities of ₩2.74t due within a year, and liabilities of ₩158.5b falling due after that. Offsetting these obligations, it had cash of ₩349.1b as well as receivables valued at ₩164.8b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩2.38t.

This is a mountain of leverage relative to its market capitalization of ₩3.00t. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Hd Hyundai MipoLtd'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.

Over 12 months, Hd Hyundai MipoLtd reported revenue of ₩4.0t, which is a gain of 8.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Hd Hyundai MipoLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩154b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩661b of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Hd Hyundai MipoLtd 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.