We Think Englewood Lab (KOSDAQ:950140) Can Stay On Top Of Its Debt

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.' 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 Englewood Lab, Inc. (KOSDAQ:950140) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Englewood Lab Carry?

As you can see below, at the end of March 2025, Englewood Lab had ₩24.6b of debt, up from ₩12.5b a year ago. Click the image for more detail. But it also has ₩47.7b in cash to offset that, meaning it has ₩23.1b net cash.

A Look At Englewood Lab's Liabilities

We can see from the most recent balance sheet that Englewood Lab had liabilities of ₩51.5b falling due within a year, and liabilities of ₩11.6b due beyond that. Offsetting this, it had ₩47.7b in cash and ₩59.9b in receivables that were due within 12 months. So it can boast ₩44.5b more liquid assets than total liabilities.

This excess liquidity suggests that Englewood Lab is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Englewood Lab boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Englewood Lab

It is just as well that Englewood Lab's load is not too heavy, because its EBIT was down 44% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Englewood Lab's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Englewood Lab 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. Over the most recent three years, Englewood Lab recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Englewood Lab has ₩23.1b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩16b, being 75% of its EBIT. So we are not troubled with Englewood Lab's debt use. 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. To that end, you should be aware of the 1 warning sign we've spotted with Englewood Lab .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.