We Think HB TechnologyLTD (KOSDAQ:078150) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, HB Technology CO.,LTD. (KOSDAQ:078150) does carry debt. But should shareholders be worried about its use of debt?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for HB TechnologyLTD

What Is HB TechnologyLTD's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 HB TechnologyLTD had ₩39.6b of debt, an increase on ₩37.1b, over one year. However, it also had ₩20.0b in cash, and so its net debt is ₩19.6b.

How Strong Is HB TechnologyLTD's Balance Sheet?

According to the last reported balance sheet, HB TechnologyLTD had liabilities of ₩57.5b due within 12 months, and liabilities of ₩41.6b due beyond 12 months. Offsetting this, it had ₩20.0b in cash and ₩20.2b in receivables that were due within 12 months. So it has liabilities totalling ₩59.0b more than its cash and near-term receivables, combined.

This deficit isn't so bad because HB TechnologyLTD is worth ₩211.0b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine HB TechnologyLTD'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.

Over 12 months, HB TechnologyLTD made a loss at the EBIT level, and saw its revenue drop to ₩100b, which is a fall of 42%. To be frank that doesn't bode well.

Caveat Emptor

Not only did HB TechnologyLTD's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₩68b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of ₩4.3b and the profit of ₩47b. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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 - HB TechnologyLTD has 2 warning signs we think you should be aware of.

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.