Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that PeopleBio, Inc. (KOSDAQ:304840) does use debt in its business. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
Check out our latest analysis for PeopleBio
What Is PeopleBio's Debt?
You can click the graphic below for the historical numbers, but it shows that PeopleBio had ₩9.56b of debt in September 2024, down from ₩11.9b, one year before. However, it does have ₩8.26b in cash offsetting this, leading to net debt of about ₩1.30b.
A Look At PeopleBio's Liabilities
According to the last reported balance sheet, PeopleBio had liabilities of ₩16.6b due within 12 months, and liabilities of ₩4.44b due beyond 12 months. On the other hand, it had cash of ₩8.26b and ₩4.25b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩8.51b.
Of course, PeopleBio has a market capitalization of ₩72.6b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is PeopleBio'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 PeopleBio wasn't profitable at an EBIT level, but managed to grow its revenue by 7.3%, to ₩4.4b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Importantly, PeopleBio had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩13b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩13b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 5 warning signs for PeopleBio (2 shouldn't be ignored) you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
About KOSDAQ:A304840
PeopleBio
A biotech company, develops bioproducts for diagnostic and treatment of protein misfolding diseases.
Moderate with mediocre balance sheet.
