Is SD Biosensor (KRX:137310) Weighed On By Its Debt Load?

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 SD Biosensor, Inc (KRX:137310) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for SD Biosensor

What Is SD Biosensor's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 SD Biosensor had ₩505.5b of debt, an increase on ₩431.1b, over one year. However, it does have ₩532.5b in cash offsetting this, leading to net cash of ₩27.0b.

How Strong Is SD Biosensor's Balance Sheet?

We can see from the most recent balance sheet that SD Biosensor had liabilities of ₩159.3b falling due within a year, and liabilities of ₩695.9b due beyond that. On the other hand, it had cash of ₩532.5b and ₩120.3b worth of receivables due within a year. So it has liabilities totalling ₩202.4b more than its cash and near-term receivables, combined.

Of course, SD Biosensor has a market capitalization of ₩1.52t, 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. While it does have liabilities worth noting, SD Biosensor 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 SD Biosensor will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year SD Biosensor had a loss before interest and tax, and actually shrunk its revenue by 2.8%, to ₩674b. That's not what we would hope to see.

So How Risky Is SD Biosensor?

While SD Biosensor lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₩74b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Case in point: We've spotted 1 warning sign for SD Biosensor you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.