Here's Why Prestige Biologics (KOSDAQ:334970) Can Afford Some Debt

Warren Buffett famously said, '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. Importantly, Prestige Biologics Co., Ltd. (KOSDAQ:334970) does carry debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Prestige Biologics

What Is Prestige Biologics's Net Debt?

The image below, which you can click on for greater detail, shows that Prestige Biologics had debt of ₩89.5b at the end of December 2024, a reduction from ₩173.0b over a year. However, it also had ₩16.1b in cash, and so its net debt is ₩73.5b.

A Look At Prestige Biologics' Liabilities

Zooming in on the latest balance sheet data, we can see that Prestige Biologics had liabilities of ₩112.8b due within 12 months and liabilities of ₩38.1b due beyond that. Offsetting this, it had ₩16.1b in cash and ₩4.53b in receivables that were due within 12 months. So its liabilities total ₩130.4b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Prestige Biologics is worth ₩340.6b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Prestige Biologics'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 Prestige Biologics wasn't profitable at an EBIT level, but managed to grow its revenue by 98%, to ₩3.9b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Prestige Biologics managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping ₩36b. 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. Another cause for caution is that is bled ₩24b in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. For instance, we've identified 4 warning signs for Prestige Biologics (2 are concerning) you should be aware of.

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.