Hyundai ADM Bio (KOSDAQ:187660) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Hyundai ADM Bio Inc. (KOSDAQ:187660) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Hyundai ADM Bio

How Much Debt Does Hyundai ADM Bio Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Hyundai ADM Bio had debt of ₩7.85b, up from none in one year. But it also has ₩9.61b in cash to offset that, meaning it has ₩1.76b net cash.

How Strong Is Hyundai ADM Bio's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hyundai ADM Bio had liabilities of ₩19.5b due within 12 months and liabilities of ₩1.53b due beyond that. Offsetting these obligations, it had cash of ₩9.61b as well as receivables valued at ₩1.01b due within 12 months. So it has liabilities totalling ₩10.4b more than its cash and near-term receivables, combined.

Given Hyundai ADM Bio has a market capitalization of ₩58.7b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Hyundai ADM Bio also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Hyundai ADM Bio'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.

Over 12 months, Hyundai ADM Bio made a loss at the EBIT level, and saw its revenue drop to ₩10b, which is a fall of 29%. To be frank that doesn't bode well.

So How Risky Is Hyundai ADM Bio?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Hyundai ADM Bio lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩15b of cash and made a loss of ₩19b. With only ₩1.76b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Hyundai ADM Bio has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.