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 real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 HLB

What Is HLB's Net Debt?

As you can see below, at the end of September 2024, HLB had ₩138.6b of debt, up from ₩81.0b a year ago. Click the image for more detail. But on the other hand it also has ₩143.5b in cash, leading to a ₩4.96b net cash position.

How Strong Is HLB's Balance Sheet?

According to the last reported balance sheet, HLB had liabilities of ₩153.7b due within 12 months, and liabilities of ₩109.4b due beyond 12 months. On the other hand, it had cash of ₩143.5b and ₩11.2b worth of receivables due within a year. So its liabilities total ₩108.4b more than the combination of its cash and short-term receivables.

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 ₩9.80t company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, HLB also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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 ₩52b, which is a fall of 22%. That makes us nervous, to say the least.

So How Risky Is HLB?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months HLB lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩135b of cash and made a loss of ₩186b. But at least it has ₩4.96b on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for HLB you should be aware of, and 1 of them is a bit unpleasant.

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.