Is MiCo BioMed (KOSDAQ:214610) Using Too Much Debt?

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. Importantly, MiCo BioMed Co., Ltd. (KOSDAQ:214610) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 MiCo BioMed

What Is MiCo BioMed's Debt?

The image below, which you can click on for greater detail, shows that MiCo BioMed had debt of ₩5.66b at the end of March 2024, a reduction from ₩17.8b over a year. However, its balance sheet shows it holds ₩10.2b in cash, so it actually has ₩4.57b net cash.

A Look At MiCo BioMed's Liabilities

According to the last reported balance sheet, MiCo BioMed had liabilities of ₩14.6b due within 12 months, and liabilities of ₩5.25b due beyond 12 months. Offsetting this, it had ₩10.2b in cash and ₩8.47b in receivables that were due within 12 months. So its liabilities total ₩1.16b more than the combination of its cash and short-term receivables.

Having regard to MiCo BioMed's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩67.9b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, MiCo BioMed also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is MiCo BioMed's earnings that will influence how the balance sheet holds up in the future. 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, MiCo BioMed made a loss at the EBIT level, and saw its revenue drop to ₩6.3b, which is a fall of 24%. That makes us nervous, to say the least.

So How Risky Is MiCo BioMed?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months MiCo BioMed lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩17b of cash and made a loss of ₩27b. With only ₩4.57b on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for MiCo BioMed you should be aware of, and 3 of them are a bit concerning.

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.

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