Hyundai ADM Bio (KOSDAQ:187660) Is Carrying A Fair Bit Of Debt

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 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?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hyundai ADM Bio's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Hyundai ADM Bio had debt of ₩8.24b, up from none in one year. On the flip side, it has ₩5.84b in cash leading to net debt of about ₩2.40b.

How Healthy 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 ₩20.5b due within 12 months and liabilities of ₩1.35b due beyond that. Offsetting these obligations, it had cash of ₩5.84b as well as receivables valued at ₩1.40b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩14.7b.

Of course, Hyundai ADM Bio has a market capitalization of ₩74.0b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Hyundai ADM Bio 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.

Check out our latest analysis for Hyundai ADM Bio

Over 12 months, Hyundai ADM Bio made a loss at the EBIT level, and saw its revenue drop to ₩9.7b, which is a fall of 29%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Hyundai ADM Bio's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₩16b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩14b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Hyundai ADM Bio (of which 2 shouldn'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.