NAVER (KRX:035420) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that NAVER Corporation (KRX:035420) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does NAVER Carry?

As you can see below, NAVER had ₩3.77t of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has ₩7.47t in cash, leading to a ₩3.70t net cash position.

How Healthy Is NAVER's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NAVER had liabilities of ₩6.09t due within 12 months and liabilities of ₩5.07t due beyond that. Offsetting this, it had ₩7.47t in cash and ₩1.67t in receivables that were due within 12 months. So its liabilities total ₩2.03t more than the combination of its cash and short-term receivables.

Of course, NAVER has a titanic market capitalization of ₩28t, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, NAVER also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for NAVER

In addition to that, we're happy to report that NAVER has boosted its EBIT by 33%, 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 future earnings, more than anything, that will determine NAVER's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. NAVER 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, NAVER generated free cash flow amounting to a very robust 84% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about NAVER's liabilities, but we can be reassured by the fact it has has net cash of ₩3.70t. And it impressed us with free cash flow of ₩2.0t, being 84% of its EBIT. So we don't think NAVER's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of NAVER's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.