Does HLB bioStepLtd (KOSDAQ:278650) Have A Healthy Balance Sheet?

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.' 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 HLB bioStep Co.,Ltd. (KOSDAQ:278650) makes use of debt. But should shareholders be worried about its use of debt?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for HLB bioStepLtd

What Is HLB bioStepLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that HLB bioStepLtd had ₩34.0b of debt in June 2024, down from ₩66.2b, one year before. But on the other hand it also has ₩40.4b in cash, leading to a ₩6.42b net cash position.

How Healthy Is HLB bioStepLtd's Balance Sheet?

According to the last reported balance sheet, HLB bioStepLtd had liabilities of ₩46.2b due within 12 months, and liabilities of ₩5.55b due beyond 12 months. Offsetting this, it had ₩40.4b in cash and ₩6.06b in receivables that were due within 12 months. So it has liabilities totalling ₩5.27b more than its cash and near-term receivables, combined.

Since publicly traded HLB bioStepLtd shares are worth a total of ₩197.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, HLB bioStepLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is HLB bioStepLtd'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.

Over 12 months, HLB bioStepLtd made a loss at the EBIT level, and saw its revenue drop to ₩49b, which is a fall of 34%. To be frank that doesn't bode well.

So How Risky Is HLB bioStepLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that HLB bioStepLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩16b and booked a ₩6.1b accounting loss. But at least it has ₩6.42b on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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, we've discovered 2 warning signs for HLB bioStepLtd (1 is potentially serious!) 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.