Does HANJOO ARTLTD (KOSDAQ:058450) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. We note that HANJOO ART Co.,LTD. (KOSDAQ:058450) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for HANJOO ARTLTD

How Much Debt Does HANJOO ARTLTD Carry?

The image below, which you can click on for greater detail, shows that at September 2024 HANJOO ARTLTD had debt of ₩14.2b, up from ₩11.3b in one year. But it also has ₩15.1b in cash to offset that, meaning it has ₩961.6m net cash.

How Strong Is HANJOO ARTLTD's Balance Sheet?

We can see from the most recent balance sheet that HANJOO ARTLTD had liabilities of ₩27.3b falling due within a year, and liabilities of ₩521.3m due beyond that. Offsetting this, it had ₩15.1b in cash and ₩17.2b in receivables that were due within 12 months. So it actually has ₩4.56b more liquid assets than total liabilities.

This excess liquidity suggests that HANJOO ARTLTD is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that HANJOO ARTLTD has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is HANJOO ARTLTD's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year HANJOO ARTLTD wasn't profitable at an EBIT level, but managed to grow its revenue by 112%, to ₩15b. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is HANJOO ARTLTD?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year HANJOO ARTLTD had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩3.8b of cash and made a loss of ₩5.6b. But the saving grace is the ₩961.6m on the balance sheet. That means it could keep spending at its current rate for more than two years. Importantly, HANJOO ARTLTD's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. For example HANJOO ARTLTD has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.