Health Check: How Prudently Does Anterogen.Co.Ltd (KOSDAQ:065660) Use Debt?

Warren Buffett famously said, '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, Anterogen.Co.,Ltd. (KOSDAQ:065660) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Anterogen.Co.Ltd

How Much Debt Does Anterogen.Co.Ltd Carry?

As you can see below, Anterogen.Co.Ltd had ₩8.89b of debt at September 2020, down from ₩24.1b a year prior. But it also has ₩50.9b in cash to offset that, meaning it has ₩42.0b net cash.

How Healthy Is Anterogen.Co.Ltd's Balance Sheet?

According to the last reported balance sheet, Anterogen.Co.Ltd had liabilities of ₩12.6b due within 12 months, and liabilities of ₩1.48b due beyond 12 months. Offsetting these obligations, it had cash of ₩50.9b as well as receivables valued at ₩2.06b due within 12 months. So it can boast ₩38.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Anterogen.Co.Ltd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Anterogen.Co.Ltd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Anterogen.Co.Ltd 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, Anterogen.Co.Ltd reported revenue of ₩4.2b, which is a gain of 6.8%, 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.

So How Risky Is Anterogen.Co.Ltd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Anterogen.Co.Ltd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩8.1b and booked a ₩6.7b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩42.0b. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Anterogen.Co.Ltd (1 is significant) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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