Does Hanla IMS (KOSDAQ:092460) Have A 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Hanla IMS Co., Ltd. (KOSDAQ:092460) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Hanla IMS Carry?

You can click the graphic below for the historical numbers, but it shows that Hanla IMS had ₩11.1b of debt in December 2024, down from ₩24.3b, one year before. But it also has ₩73.1b in cash to offset that, meaning it has ₩62.0b net cash.

How Healthy Is Hanla IMS' Balance Sheet?

We can see from the most recent balance sheet that Hanla IMS had liabilities of ₩29.6b falling due within a year, and liabilities of ₩6.93b due beyond that. On the other hand, it had cash of ₩73.1b and ₩16.1b worth of receivables due within a year. So it actually has ₩52.7b more liquid assets than total liabilities.

This luscious liquidity implies that Hanla IMS' 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. Simply put, the fact that Hanla IMS has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Hanla IMS

Better yet, Hanla IMS grew its EBIT by 198% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Hanla IMS will need earnings to service that debt. 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Hanla IMS may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Hanla IMS saw substantial negative free cash flow, in total. 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 we empathize with investors who find debt concerning, you should keep in mind that Hanla IMS has net cash of ₩62.0b, as well as more liquid assets than liabilities. And we liked the look of last year's 198% year-on-year EBIT growth. So is Hanla IMS's debt a risk? It doesn't seem so to us. 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. We've identified 3 warning signs with Hanla IMS (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.