Is SyntekaBio (KOSDAQ:226330) Weighed On By Its Debt Load?

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.' 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. As with many other companies SyntekaBio, Inc. (KOSDAQ:226330) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out 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 SyntekaBio had ₩5.20b of debt in September 2023, down from ₩9.83b, one year before. However, it does have ₩32.9b in cash offsetting this, leading to net cash of ₩27.7b.

How Strong Is SyntekaBio's Balance Sheet?

We can see from the most recent balance sheet that SyntekaBio had liabilities of ₩12.7b falling due within a year, and liabilities of ₩14.5b due beyond that. Offsetting this, it had ₩32.9b in cash and ₩130.9m in receivables that were due within 12 months. So it can boast ₩5.88b more liquid assets than total liabilities.

This surplus suggests that SyntekaBio has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, 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 it is SyntekaBio's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, SyntekaBio made a loss at the EBIT level, and saw its revenue drop to ₩45m, which is a fall of 85%. That makes us nervous, to say the least.

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 the fact is that over the last twelve months SyntekaBio lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩17b and booked a ₩2.3b accounting loss. However, it has net cash of ₩27.7b, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for SyntekaBio (2 don't sit too well with us) you should be aware of.

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.