Is Seegene (KOSDAQ:096530) Using Too Much 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.' 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. As with many other companies Seegene, Inc. (KOSDAQ:096530) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Seegene

How Much Debt Does Seegene Carry?

The chart below, which you can click on for greater detail, shows that Seegene had ₩76.9b in debt in June 2024; about the same as the year before. However, it does have ₩530.0b in cash offsetting this, leading to net cash of ₩453.1b.

A Look At Seegene's Liabilities

According to the last reported balance sheet, Seegene had liabilities of ₩153.7b due within 12 months, and liabilities of ₩70.7b due beyond 12 months. On the other hand, it had cash of ₩530.0b and ₩96.3b worth of receivables due within a year. So it actually has ₩401.8b more liquid assets than total liabilities.

This surplus liquidity suggests that Seegene's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Seegene boasts net cash, 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 ultimately the future profitability of the business will decide if Seegene can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Seegene made a loss at the EBIT level, and saw its revenue drop to ₩382b, which is a fall of 15%. We would much prefer see growth.

So How Risky Is Seegene?

Although Seegene had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩23b. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Seegene you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.