Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, DNA Link, Inc. (KOSDAQ:127120) does carry debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for DNA Link
What Is DNA Link's Net Debt?
The image below, which you can click on for greater detail, shows that DNA Link had debt of ₩2.53b at the end of December 2020, a reduction from ₩9.69b over a year. But on the other hand it also has ₩37.2b in cash, leading to a ₩34.7b net cash position.
A Look At DNA Link's Liabilities
The latest balance sheet data shows that DNA Link had liabilities of ₩14.6b due within a year, and liabilities of ₩488.3m falling due after that. Offsetting these obligations, it had cash of ₩37.2b as well as receivables valued at ₩3.66b due within 12 months. So it can boast ₩25.8b more liquid assets than total liabilities.
This excess liquidity is a great indication that DNA Link's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, DNA Link 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 DNA Link will need earnings to service that debt. 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 DNA Link's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.
So How Risky Is DNA Link?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that DNA Link had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩411m of cash and made a loss of ₩13b. With only ₩34.7b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should learn about the 4 warning signs we've spotted with DNA Link (including 1 which is significant) .
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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About KOSDAQ:A127120
DNA Link
A genome-based biotechnology company, focuses on the research and development of genome analysis services in South Korea and internationally.
Excellent balance sheet and slightly overvalued.
