Is Kangstem Biotech (KOSDAQ:217730) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Kangstem Biotech Co., Ltd. (KOSDAQ:217730) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kangstem Biotech

What Is Kangstem Biotech's Debt?

You can click the graphic below for the historical numbers, but it shows that Kangstem Biotech had ₩6.91b of debt in June 2024, down from ₩11.3b, one year before. However, its balance sheet shows it holds ₩30.3b in cash, so it actually has ₩23.3b net cash.

How Strong Is Kangstem Biotech's Balance Sheet?

The latest balance sheet data shows that Kangstem Biotech had liabilities of ₩12.9b due within a year, and liabilities of ₩4.63b falling due after that. On the other hand, it had cash of ₩30.3b and ₩1.82b worth of receivables due within a year. So it can boast ₩14.6b more liquid assets than total liabilities.

This excess liquidity suggests that Kangstem Biotech is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Kangstem Biotech boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Kangstem Biotech'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 Kangstem Biotech wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to ₩13b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Kangstem Biotech?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Kangstem Biotech had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩17b of cash and made a loss of ₩11b. But at least it has ₩23.3b on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Kangstem Biotech 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.