Is HLB Life Science (KOSDAQ:067630) A Risky Investment?

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.' 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 HLB Life Science Co., Ltd. (KOSDAQ:067630) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for HLB Life Science

What Is HLB Life Science's Debt?

As you can see below, HLB Life Science had ₩163.5b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₩113.6b in cash offsetting this, leading to net debt of about ₩49.9b.

How Healthy Is HLB Life Science's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HLB Life Science had liabilities of ₩100.8b due within 12 months and liabilities of ₩78.2b due beyond that. On the other hand, it had cash of ₩113.6b and ₩15.6b worth of receivables due within a year. So its liabilities total ₩49.8b more than the combination of its cash and short-term receivables.

Given HLB Life Science has a market capitalization of ₩1.26t, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year HLB Life Science had a loss before interest and tax, and actually shrunk its revenue by 4.7%, to ₩97b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months HLB Life Science produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩28b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩59b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 HLB Life Science has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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. 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.