Here's Why GnBS ecoLtd (KOSDAQ:382800) Can Manage Its Debt Responsibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that GnBS eco Co.,Ltd (KOSDAQ:382800) does use debt in its business. 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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for GnBS ecoLtd

What Is GnBS ecoLtd's Net Debt?

As you can see below, GnBS ecoLtd had ₩10.0b of debt at June 2024, down from ₩10.8b a year prior. But it also has ₩19.2b in cash to offset that, meaning it has ₩9.14b net cash.

How Healthy Is GnBS ecoLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that GnBS ecoLtd had liabilities of ₩11.9b due within 12 months and liabilities of ₩9.26b due beyond that. On the other hand, it had cash of ₩19.2b and ₩54.4b worth of receivables due within a year. So it can boast ₩52.3b more liquid assets than total liabilities.

This surplus strongly suggests that GnBS ecoLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, GnBS ecoLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that GnBS ecoLtd has seen its EBIT plunge 20% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if GnBS ecoLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While GnBS ecoLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, GnBS ecoLtd burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case GnBS ecoLtd has ₩9.14b in net cash and a decent-looking balance sheet. So we don't have any problem with GnBS ecoLtd's use of debt. 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. For example, we've discovered 3 warning signs for GnBS ecoLtd (1 can't be ignored!) that you should be aware of before investing here.

At the end 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 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.