HD HYUNDAI Marine SolutionLTD (KRX:443060) Seems To Use Debt Rather Sparingly

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.' 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 can see that HD HYUNDAI Marine Solution CO.,LTD. (KRX:443060) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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, 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for HD HYUNDAI Marine SolutionLTD

What Is HD HYUNDAI Marine SolutionLTD's Net Debt?

The image below, which you can click on for greater detail, shows that HD HYUNDAI Marine SolutionLTD had debt of ₩46.3b at the end of September 2024, a reduction from ₩128.0b over a year. But it also has ₩474.0b in cash to offset that, meaning it has ₩427.7b net cash.

How Strong Is HD HYUNDAI Marine SolutionLTD's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HD HYUNDAI Marine SolutionLTD had liabilities of ₩385.7b due within 12 months and liabilities of ₩38.5b due beyond that. Offsetting these obligations, it had cash of ₩474.0b as well as receivables valued at ₩227.0b due within 12 months. So it actually has ₩276.8b more liquid assets than total liabilities.

This short term liquidity is a sign that HD HYUNDAI Marine SolutionLTD could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that HD HYUNDAI Marine SolutionLTD has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, HD HYUNDAI Marine SolutionLTD grew its EBIT by 38% 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 HD HYUNDAI Marine SolutionLTD's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While HD HYUNDAI Marine SolutionLTD 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 most recent three years, HD HYUNDAI Marine SolutionLTD recorded free cash flow worth 55% 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

While it is always sensible to investigate a company's debt, in this case HD HYUNDAI Marine SolutionLTD has ₩427.7b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 38% over the last year. So is HD HYUNDAI Marine SolutionLTD's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in HD HYUNDAI Marine SolutionLTD, 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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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.