Is PanGen Biotech (KOSDAQ:222110) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies PanGen Biotech Inc. (KOSDAQ:222110) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for PanGen Biotech

What Is PanGen Biotech's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 PanGen Biotech had debt of ₩2.10b, up from ₩416.0m in one year. However, it does have ₩4.34b in cash offsetting this, leading to net cash of ₩2.24b.

A Look At PanGen Biotech's Liabilities

The latest balance sheet data shows that PanGen Biotech had liabilities of ₩5.21b due within a year, and liabilities of ₩2.52b falling due after that. Offsetting this, it had ₩4.34b in cash and ₩2.56b in receivables that were due within 12 months. So it has liabilities totalling ₩827.6m more than its cash and near-term receivables, combined.

This state of affairs indicates that PanGen Biotech's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩49.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, PanGen Biotech also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is PanGen 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.

Over 12 months, PanGen Biotech reported revenue of ₩10b, which is a gain of 121%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is PanGen Biotech?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months PanGen Biotech lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩2.6b and booked a ₩3.1b accounting loss. However, it has net cash of ₩2.24b, so it has a bit of time before it will need more capital. The good news for shareholders is that PanGen Biotech has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. For instance, we've identified 2 warning signs for PanGen Biotech that you should be aware of.

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.