Is Green Cross Holdings (KRX:005250) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Green Cross Holdings Corporation (KRX:005250) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Green Cross Holdings

How Much Debt Does Green Cross Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Green Cross Holdings had ₩1.48t of debt, an increase on ₩1.27t, over one year. On the flip side, it has ₩168.1b in cash leading to net debt of about ₩1.31t.

A Look At Green Cross Holdings' Liabilities

The latest balance sheet data shows that Green Cross Holdings had liabilities of ₩1.55t due within a year, and liabilities of ₩531.3b falling due after that. On the other hand, it had cash of ₩168.1b and ₩549.1b worth of receivables due within a year. So its liabilities total ₩1.36t more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩804.3b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Green Cross Holdings would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Green Cross Holdings 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.

Over 12 months, Green Cross Holdings reported revenue of ₩2.2t, which is a gain of 7.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Green Cross Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩8.6b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of ₩34b over the last twelve months. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Green Cross Holdings has 3 warning signs we think you should be aware of.

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.