Is HLB innoVationLtd (KOSDAQ:024850) Using Too Much Debt?

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. As with many other companies HLB innoVation Co.,Ltd. (KOSDAQ:024850) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is HLB innoVationLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 HLB innoVationLtd had ₩32.8b of debt, an increase on ₩2.64b, over one year. However, its balance sheet shows it holds ₩57.6b in cash, so it actually has ₩24.8b net cash.

How Healthy Is HLB innoVationLtd's Balance Sheet?

According to the last reported balance sheet, HLB innoVationLtd had liabilities of ₩43.4b due within 12 months, and liabilities of ₩1.69b due beyond 12 months. Offsetting these obligations, it had cash of ₩57.6b as well as receivables valued at ₩4.37b due within 12 months. So it actually has ₩16.9b more liquid assets than total liabilities.

This surplus suggests that HLB innoVationLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that HLB innoVationLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is HLB innoVationLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for HLB innoVationLtd

In the last year HLB innoVationLtd had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to ₩30b. We would much prefer see growth.

So How Risky Is HLB innoVationLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months HLB innoVationLtd lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩29b and booked a ₩32b accounting loss. But at least it has ₩24.8b on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for HLB innoVationLtd you should be aware of, and 2 of them don't sit too well with us.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.