Is ViGenCell (KOSDAQ:308080) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies ViGenCell Inc. (KOSDAQ:308080) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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. 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.

View our latest analysis for ViGenCell

How Much Debt Does ViGenCell Carry?

The chart below, which you can click on for greater detail, shows that ViGenCell had ₩7.40b in debt in June 2024; about the same as the year before. But on the other hand it also has ₩48.8b in cash, leading to a ₩41.4b net cash position.

How Healthy Is ViGenCell's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ViGenCell had liabilities of ₩7.90b due within 12 months and liabilities of ₩1.09b due beyond that. Offsetting these obligations, it had cash of ₩48.8b as well as receivables valued at ₩397.3m due within 12 months. So it can boast ₩40.2b more liquid assets than total liabilities.

This surplus strongly suggests that ViGenCell has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, ViGenCell boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ViGenCell will need earnings to service that debt. 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 ViGenCell managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

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 ₩13b of cash and made a loss of ₩15b. While this does make the company a bit risky, it's important to remember it has net cash of ₩41.4b. That means it could keep spending at its current rate for more than two years. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with ViGenCell (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.