Hyulim Networks (KOSDAQ:192410) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Hyulim Networks Co., Ltd. (KOSDAQ:192410) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Hyulim Networks

What Is Hyulim Networks's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Hyulim Networks had debt of ₩36.0b, up from ₩5.50b in one year. However, it does have ₩47.4b in cash offsetting this, leading to net cash of ₩11.4b.

A Look At Hyulim Networks' Liabilities

According to the last reported balance sheet, Hyulim Networks had liabilities of ₩20.0b due within 12 months, and liabilities of ₩31.3b due beyond 12 months. On the other hand, it had cash of ₩47.4b and ₩4.58b worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This short term liquidity is a sign that Hyulim Networks could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Hyulim Networks 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 Hyulim Networks'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.

In the last year Hyulim Networks had a loss before interest and tax, and actually shrunk its revenue by 9.3%, to ₩15b. We would much prefer see growth.

So How Risky Is Hyulim Networks?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Hyulim Networks had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩7.3b and booked a ₩19b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩11.4b. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Hyulim Networks is showing 4 warning signs in our investment analysis , and 2 of those are potentially serious...

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.