Is Hankuk Carbon (KRX:017960) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Hankuk Carbon Co., Ltd. (KRX:017960) makes use of debt. But should shareholders be worried about its use of debt?

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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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Hankuk Carbon's Debt?

The image below, which you can click on for greater detail, shows that Hankuk Carbon had debt of ₩60.6b at the end of September 2025, a reduction from ₩101.0b over a year. However, its balance sheet shows it holds ₩171.9b in cash, so it actually has ₩111.2b net cash.

A Look At Hankuk Carbon's Liabilities

Zooming in on the latest balance sheet data, we can see that Hankuk Carbon had liabilities of ₩357.6b due within 12 months and liabilities of ₩50.7b due beyond that. On the other hand, it had cash of ₩171.9b and ₩114.1b worth of receivables due within a year. So its liabilities total ₩122.2b more than the combination of its cash and short-term receivables.

Since publicly traded Hankuk Carbon shares are worth a total of ₩1.58t, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Hankuk Carbon also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Hankuk Carbon

Even more impressive was the fact that Hankuk Carbon grew its EBIT by 291% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hankuk Carbon can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Hankuk Carbon may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Hankuk Carbon actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Hankuk Carbon has ₩111.2b in net cash. And it impressed us with free cash flow of ₩64b, being 103% of its EBIT. So is Hankuk Carbon's debt a risk? It doesn't seem so to us. 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. We've identified 1 warning sign with Hankuk Carbon , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.