Does Doosan Bobcat (KRX:241560) Have A Healthy Balance Sheet?

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. We note that Doosan Bobcat Inc. (KRX:241560) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

View our latest analysis for Doosan Bobcat

What Is Doosan Bobcat's Net Debt?

As you can see below, Doosan Bobcat had US$909.1m of debt at March 2024, down from US$1.02b a year prior. However, it does have US$1.31b in cash offsetting this, leading to net cash of US$404.0m.

How Strong Is Doosan Bobcat's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Doosan Bobcat had liabilities of US$2.12b due within 12 months and liabilities of US$1.53b due beyond that. Offsetting this, it had US$1.31b in cash and US$464.4m in receivables that were due within 12 months. So it has liabilities totalling US$1.87b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Doosan Bobcat has a market capitalization of US$3.96b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Doosan Bobcat also has more cash than debt, so we're pretty confident it can manage its debt safely.

Fortunately, Doosan Bobcat grew its EBIT by 5.5% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Doosan Bobcat 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Doosan Bobcat 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 most recent three years, Doosan Bobcat recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Doosan Bobcat's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$404.0m. So we don't have any problem with Doosan Bobcat's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Doosan Bobcat has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.