Is LabGenomics (KOSDAQ:084650) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies LabGenomics Co., Ltd. (KOSDAQ:084650) makes use of debt. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is LabGenomics's Net Debt?

As you can see below, LabGenomics had ₩44.7b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has ₩90.9b in cash to offset that, meaning it has ₩46.2b net cash.

How Healthy Is LabGenomics' Balance Sheet?

We can see from the most recent balance sheet that LabGenomics had liabilities of ₩76.3b falling due within a year, and liabilities of ₩3.03b due beyond that. Offsetting these obligations, it had cash of ₩90.9b as well as receivables valued at ₩39.5b due within 12 months. So it actually has ₩51.0b more liquid assets than total liabilities.

This surplus strongly suggests that LabGenomics has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that LabGenomics has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since LabGenomics will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

Check out our latest analysis for LabGenomics

Over 12 months, LabGenomics reported revenue of ₩86b, which is a gain of 21%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is LabGenomics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that LabGenomics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩18b of cash and made a loss of ₩24b. While this does make the company a bit risky, it's important to remember it has net cash of ₩46.2b. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, LabGenomics may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that LabGenomics is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.