Is It'S Hanbul (KRX:226320) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, It'S Hanbul Co., Ltd. (KRX:226320) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for It'S Hanbul

What Is It'S Hanbul's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 It'S Hanbul had ₩8.59b of debt, an increase on ₩8.02b, over one year. However, its balance sheet shows it holds ₩316.4b in cash, so it actually has ₩307.8b net cash.

How Healthy Is It'S Hanbul's Balance Sheet?

We can see from the most recent balance sheet that It'S Hanbul had liabilities of ₩30.5b falling due within a year, and liabilities of ₩1.35b due beyond that. Offsetting this, it had ₩316.4b in cash and ₩17.6b in receivables that were due within 12 months. So it actually has ₩302.1b more liquid assets than total liabilities.

This surplus strongly suggests that It'S Hanbul has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, It'S Hanbul boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that It'S Hanbul has boosted its EBIT by 68%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is It'S Hanbul'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 company can only pay off debt with cold hard cash, not accounting profits. It'S Hanbul may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, It'S Hanbul actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case It'S Hanbul has ₩307.8b in net cash and a strong balance sheet. The cherry on top was that in converted 224% of that EBIT to free cash flow, bringing in ₩15b. At the end of the day we're not concerned about It'S Hanbul's debt. 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. Be aware that It'S Hanbul is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.