Does NOROO Holdings (KRX:000320) Have A Healthy Balance Sheet?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that NOROO Holdings Co., Ltd. (KRX:000320) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is NOROO Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that NOROO Holdings had debt of ₩106.2b at the end of June 2025, a reduction from ₩139.9b over a year. However, its balance sheet shows it holds ₩187.2b in cash, so it actually has ₩81.0b net cash.

How Healthy Is NOROO Holdings' Balance Sheet?

We can see from the most recent balance sheet that NOROO Holdings had liabilities of ₩371.6b falling due within a year, and liabilities of ₩90.9b due beyond that. Offsetting this, it had ₩187.2b in cash and ₩264.6b in receivables that were due within 12 months. So it has liabilities totalling ₩10.7b more than its cash and near-term receivables, combined.

Since publicly traded NOROO Holdings shares are worth a total of ₩320.5b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, NOROO Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for NOROO Holdings

It is just as well that NOROO Holdings's load is not too heavy, because its EBIT was down 21% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is NOROO Holdings'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While NOROO Holdings 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. Over the last three years, NOROO Holdings recorded free cash flow worth a fulsome 90% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

We could understand if investors are concerned about NOROO Holdings's liabilities, but we can be reassured by the fact it has has net cash of ₩81.0b. And it impressed us with free cash flow of ₩51b, being 90% of its EBIT. So we are not troubled with NOROO Holdings's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with NOROO Holdings .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.