Would Anygen (KOSDAQ:196300) Be Better Off With Less 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.' 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 note that Anygen Co., Ltd. (KOSDAQ:196300) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Anygen

How Much Debt Does Anygen Carry?

As you can see below, Anygen had ₩6.78b of debt at June 2024, down from ₩11.1b a year prior. However, because it has a cash reserve of ₩357.5m, its net debt is less, at about ₩6.42b.

How Strong Is Anygen's Balance Sheet?

We can see from the most recent balance sheet that Anygen had liabilities of ₩5.73b falling due within a year, and liabilities of ₩4.25b due beyond that. Offsetting this, it had ₩357.5m in cash and ₩1.46b in receivables that were due within 12 months. So it has liabilities totalling ₩8.15b more than its cash and near-term receivables, combined.

Since publicly traded Anygen shares are worth a total of ₩73.2b, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Anygen'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.

In the last year Anygen had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to ₩6.0b. We would much prefer see growth.

Caveat Emptor

Importantly, Anygen had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩6.8b at the EBIT level. 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. However, it doesn't help that it burned through ₩3.5b of cash over the last year. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Anygen is showing 5 warning signs in our investment analysis , and 2 of those are potentially serious...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.