ChabiotechLtd (KOSDAQ:085660) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. Importantly, Chabiotech Co.,Ltd. (KOSDAQ:085660) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does ChabiotechLtd Carry?

As you can see below, at the end of June 2025, ChabiotechLtd had ₩733.8b of debt, up from ₩445.6b a year ago. Click the image for more detail. However, it does have ₩390.4b in cash offsetting this, leading to net debt of about ₩343.4b.

How Strong Is ChabiotechLtd's Balance Sheet?

The latest balance sheet data shows that ChabiotechLtd had liabilities of ₩1.07t due within a year, and liabilities of ₩407.5b falling due after that. Offsetting this, it had ₩390.4b in cash and ₩309.2b in receivables that were due within 12 months. So it has liabilities totalling ₩774.5b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of ₩948.7b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is ChabiotechLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for ChabiotechLtd

In the last year ChabiotechLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to ₩1.2t. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, ChabiotechLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩88b 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩189b of cash over the last year. So suffice it to say we consider the stock very 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, we've discovered 2 warning signs for ChabiotechLtd that you should be aware of before investing here.

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.