Does NEXTURNBIOSCIENCE (KOSDAQ:089140) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest 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 need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that NEXTURNBIOSCIENCE Co., Ltd. (KOSDAQ:089140) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for NEXTURNBIOSCIENCE

How Much Debt Does NEXTURNBIOSCIENCE Carry?

The image below, which you can click on for greater detail, shows that at March 2024 NEXTURNBIOSCIENCE had debt of ₩83.3b, up from ₩72.2b in one year. On the flip side, it has ₩36.5b in cash leading to net debt of about ₩46.8b.

A Look At NEXTURNBIOSCIENCE's Liabilities

The latest balance sheet data shows that NEXTURNBIOSCIENCE had liabilities of ₩97.6b due within a year, and liabilities of ₩12.1b falling due after that. Offsetting these obligations, it had cash of ₩36.5b as well as receivables valued at ₩9.37b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩63.9b.

This deficit casts a shadow over the ₩35.1b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, NEXTURNBIOSCIENCE would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since NEXTURNBIOSCIENCE 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, NEXTURNBIOSCIENCE reported revenue of ₩38b, which is a gain of 28%, 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.

Caveat Emptor

Even though NEXTURNBIOSCIENCE managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩2.5b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₩2.6b in negative free cash flow over the last year. That means it's on the risky side of things. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for NEXTURNBIOSCIENCE you should know about.

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.