Does Boditech Med (KOSDAQ:206640) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Boditech Med Inc. (KOSDAQ:206640) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Boditech Med

What Is Boditech Med's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Boditech Med had ₩9.46b of debt, an increase on ₩4.55b, over one year. But on the other hand it also has ₩72.1b in cash, leading to a ₩62.6b net cash position.

A Look At Boditech Med's Liabilities

We can see from the most recent balance sheet that Boditech Med had liabilities of ₩25.6b falling due within a year, and liabilities of ₩4.40b due beyond that. Offsetting these obligations, it had cash of ₩72.1b as well as receivables valued at ₩31.7b due within 12 months. So it can boast ₩73.8b more liquid assets than total liabilities.

This surplus suggests that Boditech Med is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Boditech Med has more cash than debt is arguably a good indication that it can manage its debt safely.

Also good is that Boditech Med grew its EBIT at 19% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Boditech Med's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Boditech Med 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. During the last three years, Boditech Med produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. 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 Boditech Med has ₩62.6b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 19% over the last year. So is Boditech Med's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Boditech Med, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.