Does Hyundai Autoever (KRX:307950) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Hyundai Autoever Corporation (KRX:307950) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Hyundai Autoever

What Is Hyundai Autoever's Net Debt?

The chart below, which you can click on for greater detail, shows that Hyundai Autoever had ₩50.0b in debt in September 2024; about the same as the year before. However, it does have ₩804.2b in cash offsetting this, leading to net cash of ₩754.2b.

A Look At Hyundai Autoever's Liabilities

Zooming in on the latest balance sheet data, we can see that Hyundai Autoever had liabilities of ₩896.1b due within 12 months and liabilities of ₩358.8b due beyond that. On the other hand, it had cash of ₩804.2b and ₩824.5b worth of receivables due within a year. So it can boast ₩373.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Hyundai Autoever could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Hyundai Autoever boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Hyundai Autoever grew its EBIT by 9.7% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Hyundai Autoever'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Hyundai Autoever 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, Hyundai Autoever produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hyundai Autoever has ₩754.2b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩165b, being 75% of its EBIT. So we don't think Hyundai Autoever's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Hyundai Autoever, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.