Is GENINUS (KOSDAQ:389030) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that GENINUS Inc. (KOSDAQ:389030) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for GENINUS

What Is GENINUS's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 GENINUS had debt of ₩4.45b, up from none in one year. However, it does have ₩18.7b in cash offsetting this, leading to net cash of ₩14.3b.

How Healthy Is GENINUS' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that GENINUS had liabilities of ₩8.04b due within 12 months and liabilities of ₩1.20b due beyond that. Offsetting this, it had ₩18.7b in cash and ₩3.92b in receivables that were due within 12 months. So it actually has ₩13.4b more liquid assets than total liabilities.

This surplus strongly suggests that GENINUS has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that GENINUS has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is GENINUS'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 GENINUS had a loss before interest and tax, and actually shrunk its revenue by 24%, to ₩6.8b. To be frank that doesn't bode well.

So How Risky Is GENINUS?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that GENINUS had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩15b and booked a ₩10b accounting loss. However, it has net cash of ₩14.3b, so it has a bit of time before it will need more capital. 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. For example GENINUS has 4 warning signs (and 1 which can't be ignored) we think you should know about.

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