These 4 Measures Indicate That Hyundai Glovis (KRX:086280) Is Using Debt Reasonably Well

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 Hyundai Glovis Co., Ltd. (KRX:086280) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Hyundai Glovis

What Is Hyundai Glovis's Debt?

The image below, which you can click on for greater detail, shows that Hyundai Glovis had debt of ₩1.99t at the end of March 2024, a reduction from ₩2.38t over a year. But it also has ₩4.08t in cash to offset that, meaning it has ₩2.09t net cash.

How Healthy Is Hyundai Glovis' Balance Sheet?

We can see from the most recent balance sheet that Hyundai Glovis had liabilities of ₩5.29t falling due within a year, and liabilities of ₩2.27t due beyond that. On the other hand, it had cash of ₩4.08t and ₩3.40t worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Hyundai Glovis' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩6.88t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Hyundai Glovis boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that Hyundai Glovis has seen its EBIT plunge 14% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hyundai Glovis can strengthen its balance sheet over time. 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 Glovis 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. Over the last three years, Hyundai Glovis recorded free cash flow worth a fulsome 93% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Hyundai Glovis has ₩2.09t in net cash. The cherry on top was that in converted 93% of that EBIT to free cash flow, bringing in ₩1.4t. So we are not troubled with Hyundai Glovis's debt use. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Hyundai Glovis you should know about.

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.