HLB Life Science (KOSDAQ:067630) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies HLB Life Science Co., Ltd. (KOSDAQ:067630) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for HLB Life Science

How Much Debt Does HLB Life Science Carry?

As you can see below, HLB Life Science had ₩10.7b of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has ₩158.0b in cash to offset that, meaning it has ₩147.3b net cash.

How Healthy Is HLB Life Science's Balance Sheet?

We can see from the most recent balance sheet that HLB Life Science had liabilities of ₩17.9b falling due within a year, and liabilities of ₩21.6b due beyond that. Offsetting this, it had ₩158.0b in cash and ₩19.3b in receivables that were due within 12 months. So it can boast ₩137.9b more liquid assets than total liabilities.

This surplus suggests that HLB Life Science has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that HLB Life Science has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since HLB Life Science will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, HLB Life Science made a loss at the EBIT level, and saw its revenue drop to ₩92b, which is a fall of 20%. That's not what we would hope to see.

So How Risky Is HLB Life Science?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months HLB Life Science lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩19b and booked a ₩56b accounting loss. But the saving grace is the ₩147.3b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for HLB Life Science you should be aware of, and 1 of them is concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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.
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