Does Cell Bio Human Tech (KOSDAQ:318160) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that Cell Bio Human Tech Co., Ltd (KOSDAQ:318160) 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 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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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

What Is Cell Bio Human Tech's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Cell Bio Human Tech had ₩6.33b of debt, an increase on ₩5.78b, over one year. But on the other hand it also has ₩11.7b in cash, leading to a ₩5.34b net cash position.

How Strong 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 ₩7.67b falling due within a year, and liabilities of ₩61.2m due beyond that. Offsetting this, it had ₩11.7b in cash and ₩3.23b in receivables that were due within 12 months. So it can boast ₩7.16b more liquid assets than total liabilities.

It's good to see that Cell Bio Human Tech has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Cell Bio Human Tech boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Cell Bio Human Tech has boosted its EBIT by 79%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is Cell Bio Human Tech'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 last two years, Cell Bio Human Tech recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cell Bio Human Tech has ₩5.34b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 79% over the last year. So we don't think Cell Bio Human Tech's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Cell Bio Human Tech is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

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.