We Think ISU Abxis (KOSDAQ:086890) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 ISU Abxis Co., Ltd. (KOSDAQ:086890) makes use of debt. But the more important question is: how much risk is that debt creating?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for ISU Abxis

How Much Debt Does ISU Abxis Carry?

As you can see below, ISU Abxis had ₩20.1b of debt at September 2020, down from ₩25.6b a year prior. However, because it has a cash reserve of ₩19.3b, its net debt is less, at about ₩739.4m.

How Strong Is ISU Abxis' Balance Sheet?

We can see from the most recent balance sheet that ISU Abxis had liabilities of ₩5.20b falling due within a year, and liabilities of ₩28.7b due beyond that. On the other hand, it had cash of ₩19.3b and ₩5.55b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩9.00b.

Since publicly traded ISU Abxis shares are worth a total of ₩401.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, ISU Abxis has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is ISU Abxis'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, ISU Abxis reported revenue of ₩23b, which is a gain of 13%, 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

Over the last twelve months ISU Abxis produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩16b. 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 ₩18b in negative free cash flow over the last twelve months. So to be blunt we think it is 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. For example, we've discovered 4 warning signs for ISU Abxis (2 are a bit concerning!) that you should be aware of before investing here.

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.

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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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