HD Hyundai Energy SolutionsLtd (KRX:322000) Could Easily Take On More 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies HD Hyundai Energy Solutions Co.,Ltd. (KRX:322000) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is HD Hyundai Energy SolutionsLtd's Net Debt?

The image below, which you can click on for greater detail, shows that HD Hyundai Energy SolutionsLtd had debt of ₩18.1b at the end of June 2025, a reduction from ₩21.7b over a year. However, its balance sheet shows it holds ₩127.7b in cash, so it actually has ₩109.7b net cash.

How Strong Is HD Hyundai Energy SolutionsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HD Hyundai Energy SolutionsLtd had liabilities of ₩80.7b due within 12 months and liabilities of ₩18.7b due beyond that. On the other hand, it had cash of ₩127.7b and ₩100.4b worth of receivables due within a year. So it actually has ₩128.8b more liquid assets than total liabilities.

This excess liquidity suggests that HD Hyundai Energy SolutionsLtd is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, HD Hyundai Energy SolutionsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for HD Hyundai Energy SolutionsLtd

It was also good to see that despite losing money on the EBIT line last year, HD Hyundai Energy SolutionsLtd turned things around in the last 12 months, delivering and EBIT of ₩22b. The balance sheet is clearly the area to focus on when you are analysing debt. But it is HD Hyundai Energy SolutionsLtd'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While HD Hyundai Energy SolutionsLtd 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. Over the last year, HD Hyundai Energy SolutionsLtd recorded free cash flow worth a fulsome 95% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case HD Hyundai Energy SolutionsLtd has ₩109.7b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 95% of that EBIT to free cash flow, bringing in ₩21b. So is HD Hyundai Energy SolutionsLtd's debt a risk? It doesn't seem so to us. 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. To that end, you should be aware of the 2 warning signs we've spotted with HD Hyundai Energy SolutionsLtd .

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.