We Think Shin Hwa Sil UpLtd (KRX:001770) Has A Fair Chunk Of 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.' 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 Shin Hwa Sil Up Co.,Ltd (KRX:001770) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Shin Hwa Sil UpLtd

How Much Debt Does Shin Hwa Sil UpLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Shin Hwa Sil UpLtd had ₩13.7b of debt in September 2020, down from ₩14.5b, one year before. However, it also had ₩6.84b in cash, and so its net debt is ₩6.86b.

How Healthy Is Shin Hwa Sil UpLtd's Balance Sheet?

According to the last reported balance sheet, Shin Hwa Sil UpLtd had liabilities of ₩26.1b due within 12 months, and liabilities of ₩1.77b due beyond 12 months. Offsetting this, it had ₩6.84b in cash and ₩18.4b in receivables that were due within 12 months. So it has liabilities totalling ₩2.70b more than its cash and near-term receivables, combined.

Given Shin Hwa Sil UpLtd has a market capitalization of ₩26.8b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Shin Hwa Sil UpLtd'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 Shin Hwa Sil UpLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 3.0%, to ₩75b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Shin Hwa Sil UpLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩443m at the EBIT level. 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. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₩462m and the profit of ₩120m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Shin Hwa Sil UpLtd 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.

If you’re looking to trade Shin Hwa Sil UpLtd, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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