F&F (KRX:383220) 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.' 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. Importantly, F&F Co., Ltd (KRX:383220) does carry debt. But the more important question is: how much risk is that debt creating?

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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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is F&F's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 F&F had ₩76.5b of debt, an increase on ₩73.3b, over one year. However, its balance sheet shows it holds ₩164.0b in cash, so it actually has ₩87.6b net cash.

How Healthy Is F&F's Balance Sheet?

We can see from the most recent balance sheet that F&F had liabilities of ₩481.4b falling due within a year, and liabilities of ₩182.5b due beyond that. Offsetting this, it had ₩164.0b in cash and ₩104.8b in receivables that were due within 12 months. So it has liabilities totalling ₩395.1b more than its cash and near-term receivables, combined.

Since publicly traded F&F shares are worth a total of ₩2.80t, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, F&F also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for F&F

On the other hand, F&F's EBIT dived 15%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine F&F'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While F&F 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. In the last three years, F&F's free cash flow amounted to 41% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although F&F's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩87.6b. So we don't have any problem with F&F'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. For instance, we've identified 1 warning sign for F&F that you should be aware of.

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.