Is HansBiomed (KOSDAQ:042520) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that HansBiomed Corporation (KOSDAQ:042520) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for HansBiomed

How Much Debt Does HansBiomed Carry?

As you can see below, HansBiomed had ₩31.3b of debt at June 2024, down from ₩38.9b a year prior. However, because it has a cash reserve of ₩8.02b, its net debt is less, at about ₩23.3b.

How Healthy Is HansBiomed's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HansBiomed had liabilities of ₩45.9b due within 12 months and liabilities of ₩4.91b due beyond that. Offsetting this, it had ₩8.02b in cash and ₩12.9b in receivables that were due within 12 months. So it has liabilities totalling ₩29.9b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since HansBiomed has a market capitalization of ₩103.6b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is HansBiomed's earnings that will influence how the balance sheet holds up in the future. 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, HansBiomed reported revenue of ₩81b, which is a gain of 2.6%, 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

Importantly, HansBiomed had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₩2.3b. 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 ₩971m of cash over the last year. So suffice it to say we do consider the stock to be 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. Case in point: We've spotted 2 warning signs for HansBiomed you should be aware of, and 1 of them can't be ignored.

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.