Is SyntekaBio (KOSDAQ:226330) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that SyntekaBio, Inc. (KOSDAQ:226330) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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

What Is SyntekaBio's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 SyntekaBio had ₩7.55b of debt, an increase on ₩5.20b, over one year. However, its balance sheet shows it holds ₩16.7b in cash, so it actually has ₩9.15b net cash.

A Look At SyntekaBio's Liabilities

Zooming in on the latest balance sheet data, we can see that SyntekaBio had liabilities of ₩17.3b due within 12 months and liabilities of ₩2.54b due beyond that. On the other hand, it had cash of ₩16.7b and ₩9.66m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩3.08b.

Of course, SyntekaBio has a market capitalization of ₩86.1b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SyntekaBio boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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 171%, to ₩122m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is SyntekaBio?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that SyntekaBio had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩18b and booked a ₩16b accounting loss. Given it only has net cash of ₩9.15b, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that SyntekaBio has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great 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. For example SyntekaBio has 5 warning signs (and 4 which are a bit concerning) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.