Is Hyulim Networks (KOSDAQ:192410) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that Hyulim Networks Co., Ltd. (KOSDAQ:192410) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 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 Hyulim Networks

What Is Hyulim Networks's Net Debt?

The image below, which you can click on for greater detail, shows that Hyulim Networks had debt of ₩5.50b at the end of December 2023, a reduction from ₩5.90b over a year. But it also has ₩9.60b in cash to offset that, meaning it has ₩4.10b net cash.

How Healthy Is Hyulim Networks' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hyulim Networks had liabilities of ₩10.1b due within 12 months and liabilities of ₩1.04b due beyond that. Offsetting these obligations, it had cash of ₩9.60b as well as receivables valued at ₩5.17b due within 12 months. So it actually has ₩3.64b more liquid assets than total liabilities.

It's good to see that Hyulim Networks has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. 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 you can't view debt in total isolation; since Hyulim Networks will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Hyulim Networks had a loss before interest and tax, and actually shrunk its revenue by 17%, to ₩17b. We would much prefer see growth.

So How Risky Is Hyulim Networks?

Although Hyulim Networks had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩10b. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Hyulim Networks is showing 3 warning signs in our investment analysis , and 1 of those is significant...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.