Health Check: How Prudently Does SyntekaBio (KOSDAQ:226330) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, SyntekaBio, Inc. (KOSDAQ:226330) does carry debt. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SyntekaBio

How Much Debt Does SyntekaBio Carry?

As you can see below, SyntekaBio had ₩6.89b of debt at June 2024, down from ₩7.77b a year prior. But it also has ₩19.7b in cash to offset that, meaning it has ₩12.9b net cash.

A Look At SyntekaBio's Liabilities

We can see from the most recent balance sheet that SyntekaBio had liabilities of ₩19.0b falling due within a year, and liabilities of ₩2.43b due beyond that. On the other hand, it had cash of ₩19.7b and ₩48.8m worth of receivables due within a year. So it has liabilities totalling ₩1.60b more than its cash and near-term receivables, combined.

This state of affairs indicates that SyntekaBio's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩87.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, SyntekaBio also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SyntekaBio 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 SyntekaBio wasn't profitable at an EBIT level, but managed to grow its revenue by 37%, to ₩124m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is SyntekaBio?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SyntekaBio had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩23b and booked a ₩7.4b accounting loss. With only ₩12.9b on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, SyntekaBio may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. To that end, you should learn about the 4 warning signs we've spotted with SyntekaBio (including 1 which is potentially serious) .

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.