David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies ViGenCell Inc. (KOSDAQ:308080) makes use of debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for ViGenCell
What Is ViGenCell's Net Debt?
The chart below, which you can click on for greater detail, shows that ViGenCell had ₩7.40b in debt in March 2024; about the same as the year before. But it also has ₩49.9b in cash to offset that, meaning it has ₩42.5b net cash.
How Strong Is ViGenCell's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that ViGenCell had liabilities of ₩8.06b due within 12 months and liabilities of ₩961.1m due beyond that. Offsetting these obligations, it had cash of ₩49.9b as well as receivables valued at ₩670.2m due within 12 months. So it can boast ₩41.6b more liquid assets than total liabilities.
This excess liquidity is a great indication that ViGenCell's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that ViGenCell 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 ViGenCell'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.
Given its lack of meaningful operating revenue, ViGenCell shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is ViGenCell?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ViGenCell had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩16b of cash and made a loss of ₩17b. But the saving grace is the ₩42.5b 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. To that end, you should learn about the 2 warning signs we've spotted with ViGenCell (including 1 which is a bit concerning) .
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.
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About KOSDAQ:A308080
Excellent balance sheet and slightly overvalued.
