Is Green Lifescience (KOSDAQ:114450) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Green Lifescience Co., Ltd. (KOSDAQ:114450) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Green Lifescience

How Much Debt Does Green Lifescience Carry?

You can click the graphic below for the historical numbers, but it shows that Green Lifescience had ₩4.80b of debt in September 2024, down from ₩5.64b, one year before. However, it does have ₩13.6b in cash offsetting this, leading to net cash of ₩8.75b.

How Healthy Is Green Lifescience's Balance Sheet?

We can see from the most recent balance sheet that Green Lifescience had liabilities of ₩6.91b falling due within a year, and liabilities of ₩580.4m due beyond that. On the other hand, it had cash of ₩13.6b and ₩2.07b worth of receivables due within a year. So it actually has ₩8.13b more liquid assets than total liabilities.

This excess liquidity suggests that Green Lifescience is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Green Lifescience 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 you can't view debt in total isolation; since Green Lifescience 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.

In the last year Green Lifescience had a loss before interest and tax, and actually shrunk its revenue by 6.7%, to ₩22b. That's not what we would hope to see.

So How Risky Is Green Lifescience?

Although Green Lifescience had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩2.2b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For example Green Lifescience has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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.

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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.