Is Eone Diagnomics Genome Center (KOSDAQ:245620) Weighed On By Its Debt Load?

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. We note that Eone Diagnomics Genome Center Co., Ltd. (KOSDAQ:245620) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Eone Diagnomics Genome Center

How Much Debt Does Eone Diagnomics Genome Center Carry?

As you can see below, at the end of December 2020, Eone Diagnomics Genome Center had ₩53.9b of debt, up from ₩26.2b a year ago. Click the image for more detail. But it also has ₩61.3b in cash to offset that, meaning it has ₩7.40b net cash.

A Look At Eone Diagnomics Genome Center's Liabilities

The latest balance sheet data shows that Eone Diagnomics Genome Center had liabilities of ₩83.4b due within a year, and liabilities of ₩6.85b falling due after that. Offsetting these obligations, it had cash of ₩61.3b as well as receivables valued at ₩23.7b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩5.27b.

This state of affairs indicates that Eone Diagnomics Genome Center'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 ₩402.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Eone Diagnomics Genome Center 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 you can't view debt in total isolation; since Eone Diagnomics Genome Center will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Eone Diagnomics Genome Center wasn't profitable at an EBIT level, but managed to grow its revenue by 63%, to ₩93b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Eone Diagnomics Genome Center?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Eone Diagnomics Genome Center had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩10b. Given it only has net cash of ₩7.40b, the company may need to raise more capital if it doesn't reach break-even soon. Eone Diagnomics Genome Center's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Eone Diagnomics Genome Center has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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. 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.
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