Does HLB (KOSDAQ:028300) Have A Healthy Balance Sheet?

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.' 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 HLB Co., Ltd. (KOSDAQ:028300) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for HLB

What Is HLB's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 HLB had ₩88.2b of debt, an increase on ₩79.0b, over one year. However, it also had ₩74.7b in cash, and so its net debt is ₩13.5b.

A Look At HLB's Liabilities

We can see from the most recent balance sheet that HLB had liabilities of ₩96.2b falling due within a year, and liabilities of ₩125.5b due beyond that. On the other hand, it had cash of ₩74.7b and ₩10.7b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩136.3b.

This state of affairs indicates that HLB's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩11t company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, HLB has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since HLB 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.

Over 12 months, HLB made a loss at the EBIT level, and saw its revenue drop to ₩45b, which is a fall of 45%. That makes us nervous, to say the least.

Caveat Emptor

Not only did HLB's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₩128b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩149b of cash over the last year. So to be blunt we think it is risky. 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. Case in point: We've spotted 3 warning signs for HLB 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.