P&H Tech (KOSDAQ:239890) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, P&H Tech Co., Ltd. (KOSDAQ:239890) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

Check out our latest analysis for P&H Tech

How Much Debt Does P&H Tech Carry?

As you can see below, P&H Tech had ₩11.8b of debt at March 2024, down from ₩18.2b a year prior. However, it does have ₩18.5b in cash offsetting this, leading to net cash of ₩6.74b.

How Healthy Is P&H Tech's Balance Sheet?

The latest balance sheet data shows that P&H Tech had liabilities of ₩14.8b due within a year, and liabilities of ₩8.20b falling due after that. Offsetting these obligations, it had cash of ₩18.5b as well as receivables valued at ₩5.28b due within 12 months. So it actually has ₩762.7m more liquid assets than total liabilities.

Having regard to P&H Tech's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩97.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that P&H Tech has more cash than debt is arguably a good indication that it can manage its debt safely.

If P&H Tech can keep growing EBIT at last year's rate of 11% over the last year, then it will find its debt load easier to manage. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if P&H Tech can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While P&H Tech 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, P&H Tech burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case P&H Tech has ₩6.74b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 11% in the last twelve months. So we are not troubled with P&H Tech's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - P&H Tech has 4 warning signs we think you should be aware of.

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.