Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Anygen Co., Ltd. (KOSDAQ:196300) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Anygen
What Is Anygen's Net Debt?
As you can see below, at the end of September 2020, Anygen had ₩13.3b of debt, up from ₩9.93b a year ago. Click the image for more detail. However, it also had ₩7.05b in cash, and so its net debt is ₩6.21b.
A Look At Anygen's Liabilities
Zooming in on the latest balance sheet data, we can see that Anygen had liabilities of ₩16.3b due within 12 months and liabilities of ₩3.11b due beyond that. Offsetting this, it had ₩7.05b in cash and ₩2.18b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩10.2b.
Since publicly traded Anygen shares are worth a total of ₩86.8b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is Anygen's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Anygen wasn't profitable at an EBIT level, but managed to grow its revenue by 44%, to ₩8.6b. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
While we can certainly appreciate Anygen's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₩1.7b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩742m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Be aware that Anygen is showing 3 warning signs in our investment analysis , and 1 of those shouldn't be ignored...
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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About KOSDAQ:A196300
Anygen
A bio-venture company, engages in the manufacture and sale of peptide biomaterials and drug raw materials in South Korea and internationally.
Moderate with worrying balance sheet.
