Is HD Hyundai Energy SolutionsLtd (KRX:322000) Using Debt Sensibly?

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. As with many other companies HD Hyundai Energy Solutions Co.,Ltd. (KRX:322000) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for HD Hyundai Energy SolutionsLtd

How Much Debt Does HD Hyundai Energy SolutionsLtd Carry?

You can click the graphic below for the historical numbers, but it shows that HD Hyundai Energy SolutionsLtd had ₩21.7b of debt in June 2024, down from ₩47.5b, one year before. But it also has ₩108.0b in cash to offset that, meaning it has ₩86.3b net cash.

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

According to the last reported balance sheet, HD Hyundai Energy SolutionsLtd had liabilities of ₩90.9b due within 12 months, and liabilities of ₩19.6b due beyond 12 months. Offsetting these obligations, it had cash of ₩108.0b as well as receivables valued at ₩87.1b due within 12 months. So it actually has ₩84.6b more liquid assets than total liabilities.

This surplus liquidity suggests that HD Hyundai Energy SolutionsLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, HD Hyundai Energy SolutionsLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

Over 12 months, HD Hyundai Energy SolutionsLtd made a loss at the EBIT level, and saw its revenue drop to ₩465b, which is a fall of 44%. To be frank that doesn't bode well.

So How Risky Is HD Hyundai Energy SolutionsLtd?

While HD Hyundai Energy SolutionsLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩100b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - HD Hyundai Energy SolutionsLtd has 2 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.