Does G-treeBNT (KOSDAQ:115450) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that G-treeBNT Co., Ltd. (KOSDAQ:115450) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for G-treeBNT

What Is G-treeBNT's Net Debt?

You can click the graphic below for the historical numbers, but it shows that G-treeBNT had ₩25.4b of debt in September 2020, down from ₩44.9b, one year before. But it also has ₩29.1b in cash to offset that, meaning it has ₩3.67b net cash.

A Look At G-treeBNT's Liabilities

Zooming in on the latest balance sheet data, we can see that G-treeBNT had liabilities of ₩34.8b due within 12 months and liabilities of ₩3.34b due beyond that. On the other hand, it had cash of ₩29.1b and ₩11.3b worth of receivables due within a year. So it can boast ₩2.25b more liquid assets than total liabilities.

Having regard to G-treeBNT's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₩388.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that G-treeBNT has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if G-treeBNT 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, G-treeBNT made a loss at the EBIT level, and saw its revenue drop to ₩48b, which is a fall of 11%. We would much prefer see growth.

So How Risky Is G-treeBNT?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that G-treeBNT had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩22b of cash and made a loss of ₩21b. However, it has net cash of ₩3.67b, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with G-treeBNT (including 1 which makes us a bit uncomfortable) .

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. 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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