Is HLB bioStepLtd (KOSDAQ:278650) Using Debt Sensibly?

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. We can see that HLB bioStep Co.,Ltd. (KOSDAQ:278650) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for HLB bioStepLtd

What Is HLB bioStepLtd's Debt?

The image below, which you can click on for greater detail, shows that HLB bioStepLtd had debt of ₩32.1b at the end of March 2024, a reduction from ₩72.1b over a year. However, it does have ₩51.7b in cash offsetting this, leading to net cash of ₩19.6b.

How Strong Is HLB bioStepLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HLB bioStepLtd had liabilities of ₩37.1b due within 12 months and liabilities of ₩4.44b due beyond that. On the other hand, it had cash of ₩51.7b and ₩5.33b worth of receivables due within a year. So it can boast ₩15.5b more liquid assets than total liabilities.

This surplus suggests that HLB bioStepLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that HLB bioStepLtd has more cash than debt is arguably a good indication that 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 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 HLB bioStepLtd had a loss before interest and tax, and actually shrunk its revenue by 38%, to ₩51b. That makes us nervous, to say the least.

So How Risky Is HLB bioStepLtd?

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 HLB bioStepLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩18b of cash and made a loss of ₩2.8b. But the saving grace is the ₩19.6b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for HLB bioStepLtd (of which 2 shouldn't be ignored!) 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com