F&F Holdings (KRX:007700) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 F&F Holdings Co., Ltd. (KRX:007700) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is F&F Holdings's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 F&F Holdings had debt of ₩32.2b, up from ₩12.7b in one year. But on the other hand it also has ₩190.1b in cash, leading to a ₩157.9b net cash position.

How Strong Is F&F Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that F&F Holdings had liabilities of ₩317.2b due within 12 months and liabilities of ₩139.3b due beyond that. Offsetting these obligations, it had cash of ₩190.1b as well as receivables valued at ₩81.3b due within 12 months. So it has liabilities totalling ₩185.0b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since F&F Holdings has a market capitalization of ₩752.5b, 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, F&F Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for F&F Holdings

But the bad news is that F&F Holdings has seen its EBIT plunge 15% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since F&F Holdings will need earnings to service that debt. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. F&F Holdings 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. Looking at the most recent three years, F&F Holdings recorded free cash flow of 50% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While F&F Holdings does have more liabilities than liquid assets, it also has net cash of ₩157.9b. So we don't have any problem with F&F Holdings's use of debt. 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. Be aware that F&F Holdings is showing 2 warning signs in our investment analysis , 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.