We Think SELVAS Healthcare (KOSDAQ:208370) Can Manage Its Debt With Ease

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies SELVAS Healthcare, Inc. (KOSDAQ:208370) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. 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.

View our latest analysis for SELVAS Healthcare

What Is SELVAS Healthcare's Debt?

As you can see below, at the end of March 2024, SELVAS Healthcare had ₩8.27b of debt, up from ₩7.71b a year ago. Click the image for more detail. But on the other hand it also has ₩21.1b in cash, leading to a ₩12.8b net cash position.

How Healthy Is SELVAS Healthcare's Balance Sheet?

According to the last reported balance sheet, SELVAS Healthcare had liabilities of ₩11.3b due within 12 months, and liabilities of ₩432.8m due beyond 12 months. Offsetting these obligations, it had cash of ₩21.1b as well as receivables valued at ₩7.55b due within 12 months. So it can boast ₩16.9b more liquid assets than total liabilities.

This surplus suggests that SELVAS Healthcare has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SELVAS Healthcare has more cash than debt is arguably a good indication that it can manage its debt safely.

Also good is that SELVAS Healthcare grew its EBIT at 14% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is SELVAS Healthcare'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While SELVAS Healthcare 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. Looking at the most recent three years, SELVAS Healthcare recorded free cash flow of 43% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that SELVAS Healthcare has net cash of ₩12.8b, as well as more liquid assets than liabilities. And it also grew its EBIT by 14% over the last year. So is SELVAS Healthcare's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for SELVAS Healthcare 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com