Is ChabiotechLtd (KOSDAQ:085660) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Chabiotech Co.,Ltd. (KOSDAQ:085660) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is ChabiotechLtd's Debt?

As you can see below, at the end of December 2024, ChabiotechLtd had ₩752.0b of debt, up from ₩395.2b a year ago. Click the image for more detail. However, because it has a cash reserve of ₩353.5b, its net debt is less, at about ₩398.5b.

How Strong Is ChabiotechLtd's Balance Sheet?

According to the last reported balance sheet, ChabiotechLtd had liabilities of ₩994.4b due within 12 months, and liabilities of ₩454.9b due beyond 12 months. Offsetting this, it had ₩353.5b in cash and ₩288.2b in receivables that were due within 12 months. So its liabilities total ₩807.6b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩522.8b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, ChabiotechLtd would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since ChabiotechLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

View our latest analysis for ChabiotechLtd

Over 12 months, ChabiotechLtd reported revenue of ₩1.0t, which is a gain of 9.5%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months ChabiotechLtd produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩60b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩146b over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with ChabiotechLtd , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.