Here's Why SD Biosensor (KRX:137310) Can Afford Some Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, SD Biosensor, Inc (KRX:137310) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does SD Biosensor Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 SD Biosensor had ₩610.9b of debt, an increase on ₩496.1b, over one year. However, because it has a cash reserve of ₩432.2b, its net debt is less, at about ₩178.6b.

How Healthy Is SD Biosensor's Balance Sheet?

According to the last reported balance sheet, SD Biosensor had liabilities of ₩179.1b due within 12 months, and liabilities of ₩787.0b due beyond 12 months. Offsetting these obligations, it had cash of ₩432.2b as well as receivables valued at ₩137.0b due within 12 months. So it has liabilities totalling ₩396.8b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since SD Biosensor has a market capitalization of ₩1.24t, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SD Biosensor's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for SD Biosensor

Over 12 months, SD Biosensor reported revenue of ₩704b, which is a gain of 8.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, SD Biosensor had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩58b. 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. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₩106b. So we do think this stock is quite risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how SD Biosensor's profit, revenue, and operating cashflow have changed over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.