Does HansBiomed (KOSDAQ:042520) Have A Healthy Balance Sheet?

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 note that HansBiomed Corporation (KOSDAQ:042520) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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 HansBiomed

What Is HansBiomed's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 HansBiomed had debt of ₩52.0b, up from ₩33.9b in one year. On the flip side, it has ₩41.6b in cash leading to net debt of about ₩10.3b.

A Look At HansBiomed's Liabilities

According to the last reported balance sheet, HansBiomed had liabilities of ₩42.4b due within 12 months, and liabilities of ₩37.4b due beyond 12 months. Offsetting this, it had ₩41.6b in cash and ₩15.3b in receivables that were due within 12 months. So its liabilities total ₩23.0b more than the combination of its cash and short-term receivables.

Since publicly traded HansBiomed shares are worth a total of ₩117.6b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if HansBiomed can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, HansBiomed reported revenue of ₩81b, which is a gain of 17%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, HansBiomed had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩7.3b 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. Another cause for caution is that is bled ₩5.8b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. For example HansBiomed has 2 warning signs (and 1 which is significant) we think you should know about.

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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