Is HD Hyundai Energy SolutionsLtd (KRX:322000) Weighed On By Its Debt Load?

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.' 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. We can see that HD Hyundai Energy Solutions Co.,Ltd. (KRX:322000) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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.

View our latest analysis for HD Hyundai Energy SolutionsLtd

What Is HD Hyundai Energy SolutionsLtd's Debt?

The image below, which you can click on for greater detail, shows that HD Hyundai Energy SolutionsLtd had debt of ₩20.1b at the end of September 2024, a reduction from ₩71.5b over a year. However, it does have ₩116.7b in cash offsetting this, leading to net cash of ₩96.6b.

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 ₩69.2b due within 12 months and liabilities of ₩18.0b due beyond that. Offsetting these obligations, it had cash of ₩116.7b as well as receivables valued at ₩73.4b due within 12 months. So it can boast ₩102.9b more liquid assets than total liabilities.

This luscious liquidity implies that HD Hyundai Energy SolutionsLtd's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, HD Hyundai Energy SolutionsLtd boasts net cash, so it's fair to say it does not have a heavy debt load! 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 HD Hyundai Energy SolutionsLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, HD Hyundai Energy SolutionsLtd made a loss at the EBIT level, and saw its revenue drop to ₩424b, which is a fall of 40%. That makes us nervous, to say the least.

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 ₩81b. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. For riskier companies like HD Hyundai Energy SolutionsLtd I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.