Ecopro Hn (KOSDAQ:383310) Has A Somewhat Strained Balance Sheet

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.' 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 Ecopro Hn. Co., Ltd. (KOSDAQ:383310) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is Ecopro Hn's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Ecopro Hn had debt of ₩112.0b, up from ₩70.0b in one year. But it also has ₩207.6b in cash to offset that, meaning it has ₩95.6b net cash.

How Strong Is Ecopro Hn's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ecopro Hn had liabilities of ₩103.8b due within 12 months and liabilities of ₩66.5b due beyond that. Offsetting these obligations, it had cash of ₩207.6b as well as receivables valued at ₩37.0b due within 12 months. So it can boast ₩74.3b more liquid assets than total liabilities.

This surplus suggests that Ecopro Hn has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Ecopro Hn boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Ecopro Hn

In fact Ecopro Hn's saving grace is its low debt levels, because its EBIT has tanked 42% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Ecopro Hn's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Ecopro Hn 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 three years, Ecopro Hn saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Ecopro Hn has net cash of ₩95.6b, as well as more liquid assets than liabilities. So although we see some areas for improvement, we're not too worried about Ecopro Hn's balance sheet. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Ecopro Hn (of which 2 are a bit unpleasant!) 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.