ENBIO (KOSDAQ:352940) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that ENBIO Co., Ltd. (KOSDAQ:352940) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for ENBIO

How Much Debt Does ENBIO Carry?

The image below, which you can click on for greater detail, shows that ENBIO had debt of ₩16.4b at the end of March 2024, a reduction from ₩23.2b over a year. However, because it has a cash reserve of ₩1.06b, its net debt is less, at about ₩15.4b.

How Healthy Is ENBIO's Balance Sheet?

According to the last reported balance sheet, ENBIO had liabilities of ₩25.9b due within 12 months, and liabilities of ₩4.54b due beyond 12 months. Offsetting these obligations, it had cash of ₩1.06b as well as receivables valued at ₩15.0b due within 12 months. So it has liabilities totalling ₩14.3b more than its cash and near-term receivables, combined.

ENBIO has a market capitalization of ₩24.6b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is ENBIO'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, ENBIO made a loss at the EBIT level, and saw its revenue drop to ₩29b, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

While ENBIO'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 a very considerable ₩7.4b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 ₩804m of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for ENBIO (1 is a bit unpleasant) 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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