We Think CarelabsLtd (KOSDAQ:263700) Has A Fair Chunk Of 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. We note that Carelabs Co.,Ltd (KOSDAQ:263700) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CarelabsLtd

What Is CarelabsLtd's Net Debt?

The image below, which you can click on for greater detail, shows that CarelabsLtd had debt of ₩57.5b at the end of March 2024, a reduction from ₩71.5b over a year. On the flip side, it has ₩32.0b in cash leading to net debt of about ₩25.5b.

How Healthy Is CarelabsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CarelabsLtd had liabilities of ₩32.3b due within 12 months and liabilities of ₩48.5b due beyond that. Offsetting these obligations, it had cash of ₩32.0b as well as receivables valued at ₩4.49b due within 12 months. So its liabilities total ₩44.3b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since CarelabsLtd has a market capitalization of ₩77.6b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 CarelabsLtd 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 CarelabsLtd had a loss before interest and tax, and actually shrunk its revenue by 7.1%, to ₩81b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months CarelabsLtd produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩11b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩10b of cash over the last year. So in short it's a really risky stock. 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 instance, we've identified 2 warning signs for CarelabsLtd (1 is potentially serious) you should be aware of.

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.