Is MEDICOX (KOSDAQ:054180) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that MEDICOX Co., Ltd. (KOSDAQ:054180) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

Check out our latest analysis for MEDICOX

What Is MEDICOX's Debt?

As you can see below, MEDICOX had ₩18.1b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds ₩18.3b in cash, so it actually has ₩204.0m net cash.

A Look At MEDICOX's Liabilities

Zooming in on the latest balance sheet data, we can see that MEDICOX had liabilities of ₩26.0b due within 12 months and liabilities of ₩3.82b due beyond that. Offsetting this, it had ₩18.3b in cash and ₩4.16b in receivables that were due within 12 months. So it has liabilities totalling ₩7.39b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since MEDICOX has a market capitalization of ₩26.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, MEDICOX boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since MEDICOX will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, MEDICOX reported revenue of ₩29b, which is a gain of 38%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is MEDICOX?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that MEDICOX had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩10b of cash and made a loss of ₩29b. However, it has net cash of ₩204.0m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, MEDICOX may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for MEDICOX you should be aware of, and 2 of them are concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com