Komipharm International (KOSDAQ:041960) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Komipharm International Co., Ltd. (KOSDAQ:041960) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Komipharm International

How Much Debt Does Komipharm International Carry?

You can click the graphic below for the historical numbers, but it shows that Komipharm International had ₩36.3b of debt in September 2020, down from ₩40.7b, one year before. However, it does have ₩18.9b in cash offsetting this, leading to net debt of about ₩17.4b.

A Look At Komipharm International's Liabilities

We can see from the most recent balance sheet that Komipharm International had liabilities of ₩37.5b falling due within a year, and liabilities of ₩6.01b due beyond that. Offsetting these obligations, it had cash of ₩18.9b as well as receivables valued at ₩13.6b due within 12 months. So it has liabilities totalling ₩11.0b more than its cash and near-term receivables, combined.

Having regard to Komipharm International's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩862.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Komipharm International 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.

Over 12 months, Komipharm International reported revenue of ₩38b, which is a gain of 10%, 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

Over the last twelve months Komipharm International produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩5.8b. 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. However, it doesn't help that it burned through ₩975m 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Komipharm International you should know about.

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. 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.
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