Cell Bio Human Tech (KOSDAQ:318160) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Cell Bio Human Tech Co., Ltd (KOSDAQ:318160) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Cell Bio Human Tech

How Much Debt Does Cell Bio Human Tech Carry?

As you can see below, at the end of March 2024, Cell Bio Human Tech had ₩6.09b of debt, up from ₩5.78b a year ago. Click the image for more detail. But it also has ₩16.2b in cash to offset that, meaning it has ₩10.1b net cash.

How Healthy Is Cell Bio Human Tech's Balance Sheet?

We can see from the most recent balance sheet that Cell Bio Human Tech had liabilities of ₩7.87b falling due within a year, and liabilities of ₩68.4m due beyond that. Offsetting these obligations, it had cash of ₩16.2b as well as receivables valued at ₩3.46b due within 12 months. So it can boast ₩11.7b more liquid assets than total liabilities.

This surplus liquidity suggests that Cell Bio Human Tech's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Cell Bio Human Tech has more cash than debt is arguably a good indication that it can manage its debt safely.

The good news is that Cell Bio Human Tech has increased its EBIT by 2.9% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Cell Bio Human Tech'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Cell Bio Human Tech may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Cell Bio Human Tech recorded free cash flow worth 58% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Cell Bio Human Tech has net cash of ₩10.1b, as well as more liquid assets than liabilities. So is Cell Bio Human Tech's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Cell Bio Human Tech (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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