HD Hyundai Heavy IndustriesLtd (KRX:329180) Could Easily Take On More Debt
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies HD Hyundai Heavy Industries Co.,Ltd. (KRX:329180) makes use of debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is HD Hyundai Heavy IndustriesLtd's Net Debt?
The image below, which you can click on for greater detail, shows that HD Hyundai Heavy IndustriesLtd had debt of ₩742.5b at the end of September 2025, a reduction from ₩1.47t over a year. However, its balance sheet shows it holds ₩4.03t in cash, so it actually has ₩3.28t net cash.
How Healthy Is HD Hyundai Heavy IndustriesLtd's Balance Sheet?
The latest balance sheet data shows that HD Hyundai Heavy IndustriesLtd had liabilities of ₩13t due within a year, and liabilities of ₩1.16t falling due after that. Offsetting these obligations, it had cash of ₩4.03t as well as receivables valued at ₩1.70t due within 12 months. So its liabilities total ₩8.60t more than the combination of its cash and short-term receivables.
Of course, HD Hyundai Heavy IndustriesLtd has a titanic market capitalization of ₩61t, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, HD Hyundai Heavy IndustriesLtd boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for HD Hyundai Heavy IndustriesLtd
Better yet, HD Hyundai Heavy IndustriesLtd grew its EBIT by 214% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if HD Hyundai Heavy IndustriesLtd 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While HD Hyundai Heavy IndustriesLtd 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, HD Hyundai Heavy IndustriesLtd actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Summing Up
Although HD Hyundai Heavy IndustriesLtd's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₩3.28t. The cherry on top was that in converted 218% of that EBIT to free cash flow, bringing in ₩4.7t. So we don't think HD Hyundai Heavy IndustriesLtd's use of debt is risky. 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. For example - HD Hyundai Heavy IndustriesLtd has 1 warning sign we think you should be aware of.
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.