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. As with many other companies Green Cross Holdings Corporation (KRX:005250) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. 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.

View our latest analysis for Green Cross Holdings

How Much Debt Does Green Cross Holdings Carry?

As you can see below, at the end of March 2024, Green Cross Holdings had ₩1.34t of debt, up from ₩1.12t a year ago. Click the image for more detail. However, it also had ₩175.6b in cash, and so its net debt is ₩1.17t.

How Strong Is Green Cross Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Green Cross Holdings had liabilities of ₩1.44t due within 12 months and liabilities of ₩495.4b due beyond that. On the other hand, it had cash of ₩175.6b and ₩492.2b worth of receivables due within a year. So it has liabilities totalling ₩1.26t more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₩771.8b 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. There's no doubt that we learn most about debt from the balance sheet. But it is Green Cross Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Green Cross Holdings reported revenue of ₩2.1t, which is a gain of 3.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Green Cross Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩26b. Considering that alongside the liabilities mentioned above make us nervous 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 ₩160b over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Green Cross Holdings that 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.

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

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.