The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, builds no bones about it when he states ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it might be obvious that you required to consider debt, when you consider about how risky any given stock is, becautilize too much debt can sink a company. As with many other companies HL Mando Corporation (KRX:204320) builds utilize of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things obtain really bad, the lconcludeers 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 required capital to invest in growth at high rates of return. When we consider about a company’s utilize of debt, we first see at cash and debt toobtainher.
What Is HL Mando’s Debt?
The chart below, which you can click on for greater detail, reveals that HL Mando had ₩2.14t in debt in September 2025; about the same as the year before. However, becautilize it has a cash reserve of ₩609.7b, its net debt is less, at about ₩1.53t.
How Healthy Is HL Mando’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that HL Mando had liabilities of ₩3.06t due within 12 months and liabilities of ₩1.23t due beyond that. Offsetting these obligations, it had cash of ₩609.7b as well as receivables valued at ₩1.94t due within 12 months. So its liabilities total ₩1.73t more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since HL Mando has a market capitalization of ₩3.01t, and so it could probably strengthen its balance sheet by raising capital if it requireded to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
View our latest analysis for HL Mando
In order to size up a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
HL Mando has net debt worth 2.1 times EBITDA, which isn’t too much, but its interest cover sees a bit on the low side, with EBIT at only 4.2 times the interest expense. While that doesn’t worry us too much, it does suggest the interest payments are somewhat of a burden. Importantly, HL Mando grew its EBIT by 30% over the last twelve months, and that growth will build it simpler to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if HL Mando can strengthen its balance sheet over time. So if you’re focutilized on the future you can check out this free report revealing analyst profit forecasts.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it requireds cold hard cash. So it’s worth checking how much of that EBIT is backed by free cash flow. Over the last three years, HL Mando recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expconcludeiture will produce free cash flow in the future.
Our View
Neither HL Mando’s ability to convert EBIT to free cash flow nor its interest cover gave us confidence in its ability to take on more debt. But its EBIT growth rate notifys a very different story, and suggests some resilience. We consider that HL Mando’s debt does build it a bit risky, after considering the aforementioned data points toobtainher. That’s not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. We’ve identified 4 warning signs with HL Mando , and understanding them should be part of your investment process.
At the conclude of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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