Is Hyundai Bioscience (KOSDAQ:048410) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Hyundai Bioscience Co., Ltd. (KOSDAQ:048410) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Hyundai Bioscience

How Much Debt Does Hyundai Bioscience Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Hyundai Bioscience had debt of ₩35.8b, up from ₩5.40b in one year. However, it does have ₩24.9b in cash offsetting this, leading to net debt of about ₩10.8b.

How Strong Is Hyundai Bioscience's Balance Sheet?

The latest balance sheet data shows that Hyundai Bioscience had liabilities of ₩42.7b due within a year, and liabilities of ₩2.52b falling due after that. Offsetting this, it had ₩24.9b in cash and ₩1.67b in receivables that were due within 12 months. So its liabilities total ₩18.6b more than the combination of its cash and short-term receivables.

Of course, Hyundai Bioscience has a market capitalization of ₩610.8b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hyundai Bioscience 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 Hyundai Bioscience had a loss before interest and tax, and actually shrunk its revenue by 12%, to ₩9.2b. We would much prefer see growth.

Caveat Emptor

While Hyundai Bioscience's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩8.3b at the EBIT level. 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 ₩3.3b of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Hyundai Bioscience 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.