We Think Hyundai Futurenet (KRX:126560) 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 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. As with many other companies Hyundai Futurenet Co., Ltd. (KRX:126560) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Hyundai Futurenet

How Much Debt Does Hyundai Futurenet Carry?

As you can see below, Hyundai Futurenet had ₩33.2b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has ₩466.0b in cash to offset that, meaning it has ₩432.8b net cash.

How Strong Is Hyundai Futurenet's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hyundai Futurenet had liabilities of ₩63.3b due within 12 months and liabilities of ₩7.58b due beyond that. On the other hand, it had cash of ₩466.0b and ₩40.0b worth of receivables due within a year. So it can boast ₩435.1b more liquid assets than total liabilities.

This luscious liquidity implies that Hyundai Futurenet's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Hyundai Futurenet boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Hyundai Futurenet grew its EBIT by 88% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hyundai Futurenet will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Hyundai Futurenet 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. During the last three years, Hyundai Futurenet burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Hyundai Futurenet has net cash of ₩432.8b, as well as more liquid assets than liabilities. And we liked the look of last year's 88% year-on-year EBIT growth. So we don't think Hyundai Futurenet's use of debt is risky. 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. To that end, you should be aware of the 2 warning signs we've spotted with Hyundai Futurenet .

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.