FOCUS HNS (KOSDAQ:331380) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that FOCUS HNS Co., Ltd. (KOSDAQ:331380) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is FOCUS HNS's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 FOCUS HNS had debt of ₩19.0b, up from ₩4.45b in one year. On the flip side, it has ₩7.62b in cash leading to net debt of about ₩11.4b.

A Look At FOCUS HNS' Liabilities

We can see from the most recent balance sheet that FOCUS HNS had liabilities of ₩26.6b falling due within a year, and liabilities of ₩5.54b due beyond that. Offsetting this, it had ₩7.62b in cash and ₩11.9b in receivables that were due within 12 months. So it has liabilities totalling ₩12.6b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since FOCUS HNS has a market capitalization of ₩34.9b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is FOCUS HNS'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 .

View our latest analysis for FOCUS HNS

Over 12 months, FOCUS HNS made a loss at the EBIT level, and saw its revenue drop to ₩58b, which is a fall of 2.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, FOCUS HNS had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩5.6b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩7.9b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for FOCUS HNS (2 are potentially serious!) that you should be aware of before investing here.

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.