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. As with many other companies Genexine, Inc. (KOSDAQ:095700) makes use of debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Genexine
How Much Debt Does Genexine Carry?
You can click the graphic below for the historical numbers, but it shows that Genexine had ₩68.5b of debt in March 2024, down from ₩74.2b, one year before. However, it does have ₩52.5b in cash offsetting this, leading to net debt of about ₩16.0b.
How Healthy Is Genexine's Balance Sheet?
According to the last reported balance sheet, Genexine had liabilities of ₩51.8b due within 12 months, and liabilities of ₩25.5b due beyond 12 months. Offsetting these obligations, it had cash of ₩52.5b as well as receivables valued at ₩2.03b due within 12 months. So its liabilities total ₩22.8b more than the combination of its cash and short-term receivables.
Since publicly traded Genexine shares are worth a total of ₩292.6b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But it is Genexine's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Genexine had a loss before interest and tax, and actually shrunk its revenue by 3.5%, to ₩5.8b. We would much prefer see growth.
Caveat Emptor
Importantly, Genexine had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩43b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩42b in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Genexine is showing 3 warning signs in our investment analysis , and 2 of those are a bit concerning...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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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About KOSDAQ:A095700
Genexine
Operates as a biotechnology company that focuses on the development and commercialization of immunotherapies in South Korea and internationally.
Medium-low with adequate balance sheet.
