Is Green Lifescience (KOSDAQ:114450) Using Debt In A Risky Way?

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 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, Green Lifescience Co., Ltd. (KOSDAQ:114450) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Green Lifescience

What Is Green Lifescience's Net Debt?

The image below, which you can click on for greater detail, shows that Green Lifescience had debt of ₩4.80b at the end of June 2024, a reduction from ₩8.30b over a year. But on the other hand it also has ₩12.7b in cash, leading to a ₩7.93b net cash position.

How Strong Is Green Lifescience's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Green Lifescience had liabilities of ₩6.88b due within 12 months and liabilities of ₩488.9m due beyond that. Offsetting these obligations, it had cash of ₩12.7b as well as receivables valued at ₩4.27b due within 12 months. So it actually has ₩9.63b more liquid assets than total liabilities.

This surplus suggests that Green Lifescience 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. 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 it is Green Lifescience'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.

In the last year Green Lifescience wasn't profitable at an EBIT level, but managed to grow its revenue by 10%, to ₩25b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

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 ₩406m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Green Lifescience (of which 2 can't be ignored!) you should know about.

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.