05. Does more debt always mean more danger?

Two independent verification paths recombining inside a valuation range while a failed fragment falls beyond an exit boundary — Image generated with OpenAI from the article topic

A debt ratio cannot tell you whether customers will pay before a loan matures. Read Hanbit Tools through three questions: how much equity absorbs losses, how burdensome interest is, and when cash payments fall due. Amounts are KRW million.

Separate liabilities from interest-bearing debt

Hanbit's liabilities of 80 comprise bank debt of 60 and trade payables of 20. Both must be settled, but the payables carry no separate interest in this exercise. Treating all liabilities as bank borrowing hides the different payment arrangements. The balance sheet provides a dated position; related notes supply important conditions.¹

Measure	Calculation	Interpretation
Total liabilities/equity	80 ÷ 68.8 = 116.3%	All recorded liabilities against book equity
Bank debt/equity	60 ÷ 68.8 = 87.2%	Interest-bearing bank borrowing only
EBIT/interest	42 ÷ 6 = 7 times	Accounting operating profit relative to interest
Bank debt less all cash	60 − 56.8 = 3.2	Requires checking cash availability

Interest coverage of seven times can coexist with operating cash flow of −3.2 because credit sales contribute to profit before collection. Coverage does not prove that a repayment due next week can be made.

Change maturity, and the picture changes

Current assets total 116.8: cash 56.8, receivables 50, and inventory 10. If all bank debt is long term and only payables of 20 are current, the current ratio is 584%. If all bank debt instead matures within a year, current liabilities are 80 and the ratio becomes 146%.

These are independent maturity scenarios. The base case has not specified an actual loan maturity. Even the second ratio exceeding 100% does not establish timely liquidity: customers might pay late and inventory might need discounting. An available committed facility also differs from hoping that a lender will renew a loan.

Can all the cash repay debt?

Later valuation chapters assume that operations need cash of 20. On that basis, excess cash is 36.8, leaving bank debt less excess cash of 23.2. This differs from subtracting every cash unit. Label the definition rather than treating it as an interchangeable provider measure.

Build a monthly schedule of opening cash, collections, supplier payments, payroll, tax, interest, and principal. Apply rate shocks only to debt that reprices. If all 60 reprices upward by three percentage points in a separate scenario, annual interest rises by 1.8. Existing fixed-rate debt would not automatically incur that increase immediately.

Keep a short record

List maturities, collateral, rates, covenants, and restricted cash. Then ask whether a two-month delay from the largest customer would prevent the first repayment. If the report does not answer, record the missing information. Solvency analysis becomes useful when debt amounts meet a cash timetable.