Would HLB (KOSDAQ:028300) Be Better Off With Less Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, HLB Co., Ltd. (KOSDAQ:028300) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. 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 HLB's Net Debt?

As you can see below, at the end of December 2024, HLB had ₩143.7b of debt, up from ₩46.6b a year ago. Click the image for more detail. However, it also had ₩100.9b in cash, and so its net debt is ₩42.9b.

How Healthy Is HLB's Balance Sheet?

We can see from the most recent balance sheet that HLB had liabilities of ₩160.7b falling due within a year, and liabilities of ₩74.6b due beyond that. Offsetting these obligations, it had cash of ₩100.9b as well as receivables valued at ₩15.0b due within 12 months. So it has liabilities totalling ₩119.4b more than its cash and near-term receivables, combined.

Having regard to HLB's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩7.46t company is short on cash, but still worth keeping an eye on the balance sheet. But either way, HLB has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is HLB'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.

Check out our latest analysis for HLB

In the last year HLB wasn't profitable at an EBIT level, but managed to grow its revenue by 59%, to ₩68b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though HLB managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩119b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩140b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. To that end, you should learn about the 3 warning signs we've spotted with HLB (including 2 which are concerning) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.