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. As with many other companies SillaJen, Inc. (KOSDAQ:215600) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for SillaJen
What Is SillaJen's Net Debt?
You can click the graphic below for the historical numbers, but it shows that SillaJen had ₩10.0b of debt in September 2023, down from ₩14.1b, one year before. However, its balance sheet shows it holds ₩56.8b in cash, so it actually has ₩46.8b net cash.
A Look At SillaJen's Liabilities
We can see from the most recent balance sheet that SillaJen had liabilities of ₩12.3b falling due within a year, and liabilities of ₩8.95b due beyond that. Offsetting this, it had ₩56.8b in cash and ₩754.1m in receivables that were due within 12 months. So it actually has ₩36.3b more liquid assets than total liabilities.
This surplus suggests that SillaJen has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SillaJen has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is SillaJen'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 SillaJen wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to ₩6.1b. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is SillaJen?
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 SillaJen lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩25b of cash and made a loss of ₩22b. However, it has net cash of ₩46.8b, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, SillaJen may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for SillaJen that you should be aware of before investing here.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
About KOSDAQ:A215600
SillaJen
Develops and commercializes oncolytic immunotherapy products in South Korea.
Flawless balance sheet and slightly overvalued.