Youngone Holdings (KRX:009970) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Youngone Holdings Co., Ltd. (KRX:009970) makes use of debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Youngone Holdings

What Is Youngone Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Youngone Holdings had debt of ₩326.0b at the end of September 2024, a reduction from ₩630.3b over a year. But on the other hand it also has ₩1.69t in cash, leading to a ₩1.36t net cash position.

How Healthy Is Youngone Holdings' Balance Sheet?

We can see from the most recent balance sheet that Youngone Holdings had liabilities of ₩674.5b falling due within a year, and liabilities of ₩755.0b due beyond that. On the other hand, it had cash of ₩1.69t and ₩678.1b worth of receivables due within a year. So it can boast ₩935.5b more liquid assets than total liabilities.

This excess liquidity is a great indication that Youngone Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Youngone Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Youngone Holdings's saving grace is its low debt levels, because its EBIT has tanked 31% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Youngone Holdings'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Youngone 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. In the last three years, Youngone Holdings's free cash flow amounted to 44% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Youngone Holdings has net cash of ₩1.36t, as well as more liquid assets than liabilities. So we don't have any problem with Youngone Holdings's use of debt. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Youngone Holdings's dividend history, without delay!

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.