We Think Hugel (KOSDAQ:145020) Can Manage Its Debt With Ease

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.' 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 Hugel, Inc. (KOSDAQ:145020) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Hugel Carry?

As you can see below, Hugel had ₩24.8b of debt at March 2025, down from ₩89.9b a year prior. However, its balance sheet shows it holds ₩467.0b in cash, so it actually has ₩442.2b net cash.

How Strong Is Hugel's Balance Sheet?

According to the last reported balance sheet, Hugel had liabilities of ₩57.5b due within 12 months, and liabilities of ₩37.3b due beyond 12 months. On the other hand, it had cash of ₩467.0b and ₩42.4b worth of receivables due within a year. So it can boast ₩414.7b more liquid assets than total liabilities.

This short term liquidity is a sign that Hugel could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Hugel has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Hugel

In addition to that, we're happy to report that Hugel has boosted its EBIT by 47%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Hugel's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Hugel 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. During the last three years, Hugel produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Hugel has net cash of ₩442.2b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 47% over the last year. So we don't think Hugel'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 Hugel's earnings per share history for free.

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.