Is LabGenomics (KOSDAQ:084650) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, LabGenomics Co., Ltd. (KOSDAQ:084650) does carry debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for LabGenomics

How Much Debt Does LabGenomics Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 LabGenomics had ₩46.2b of debt, an increase on ₩40.0b, over one year. However, its balance sheet shows it holds ₩107.9b in cash, so it actually has ₩61.7b net cash.

A Look At LabGenomics' Liabilities

Zooming in on the latest balance sheet data, we can see that LabGenomics had liabilities of ₩82.0b due within 12 months and liabilities of ₩2.69b due beyond that. Offsetting these obligations, it had cash of ₩107.9b as well as receivables valued at ₩34.9b due within 12 months. So it actually has ₩58.1b more liquid assets than total liabilities.

This surplus suggests that LabGenomics is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that LabGenomics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if LabGenomics 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.

In the last year LabGenomics's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

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 ₩13b of cash and made a loss of ₩18b. Given it only has net cash of ₩61.7b, the company may need to raise more capital if it doesn't reach break-even soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for LabGenomics 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. 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.

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