Is Hyundai Wia (KRX:011210) taking on too much debt?

Some say volatility, not debt, is the best way to think about risk as an investor, but Warren Buffett famously said, “Volatility is far from synonymous with risk.” When you think about how risky a particular stock is, perhaps it is obvious that you need to take debt into account because too much debt can ruin a business. We can see that Hyundai Wia Corporation (KRX:011210) uses debt in its business. But the real question is whether this debt makes the company risky.

Why does debt pose risks?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either through free cash flow or by raising capital at an attractive price. A key component of capitalism is the process of “creative destruction,” in which failed companies are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario involves having to raise new equity capital at a low price, resulting in permanent shareholder dilution. However, the most common situation is for a company to manage its debt reasonably well – and to its own advantage. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for Hyundai Wia

How much debt does Hyundai Wia have?

The image below, which you can click on for more details, shows that Hyundai Wia had 1.25 tons of debt at the end of September 2024, a reduction from 1.64 tons in one year. On the other hand, it also has ₹1.26 trillion in cash, leading to a net cash position of ₹7.85 billion.

A look at Hyundai Wia’s liabilities

Zooming in on the latest balance sheet data, we can see that Hyundai Wia had liabilities of ₩2.13 trillion due within 12 months and liabilities of ₩688.5 billion due beyond that were due. Offsetting these obligations, the company had cash worth ₩1.26t as well as receivables valued at ₩1.57t due within 12 months. These liquid assets roughly correspond to the total liabilities.

Considering Hyundai Wia’s size, the company’s cash and total liabilities appear to be in balance. While it’s hard to imagine the 1.02T company struggling to run on cash, we still think its balance sheet is worth keeping an eye on. In short: Hyundai Wia has net cash, so it’s fair to say that the company doesn’t have a high debt load!

In contrast, Hyundai Wia suffered an EBIT decline of 4.0% in the last twelve months. If profits continue to decline at this rate, the company could find it increasingly difficult to manage its debt load. The balance sheet is clearly the area you should focus on when analyzing debt. However, the company’s future profitability will ultimately determine whether Hyundai Wia 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.

After all, a company needs free cash flow to pay off debt. Book profits are simply not enough. Although Hyundai Wia does have net cash on its balance sheet, it’s still worth taking a look at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how quickly the company can use that liquidity builds up (or erodes). Balance. To the delight of all shareholders, Hyundai Wia actually generated more free cash flow than EBIT over the last three years. There’s nothing like cash in when it comes to staying in your lender’s good graces.

In summary

While we sympathize with investors who find debt worrisome, you should keep in mind that Hyundai Wia has net cash of ₩7.85b, as well as more liquid assets than liabilities. The icing on the cake was that 120% of that EBIT was converted into free cash flow, bringing in ₩179b. So is Hyundai Wia’s debt a risk? It doesn’t seem like that to us. We think it’s more important than most other metrics to track how quickly earnings per share are growing, if at all. If you’ve come to this conclusion too, you’re in luck, because today you can check out this interactive chart of Hyundai Wia’s earnings per share for free.

If you’re the kind of investor who prefers buying stocks without the burden of debt, then don’t hesitate to explore our exclusive list of net cash growth stocks today.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.