Is Bukwang Pharmaceutical (KRX:003000) Weighed On By Its Debt Load?

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.' 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. Importantly, Bukwang Pharmaceutical Co., Ltd. (KRX:003000) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Bukwang Pharmaceutical

What Is Bukwang Pharmaceutical's Net Debt?

As you can see below, at the end of December 2023, Bukwang Pharmaceutical had ₩78.5b of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has ₩151.2b in cash, leading to a ₩72.7b net cash position.

How Strong Is Bukwang Pharmaceutical's Balance Sheet?

We can see from the most recent balance sheet that Bukwang Pharmaceutical had liabilities of ₩97.5b falling due within a year, and liabilities of ₩97.2b due beyond that. On the other hand, it had cash of ₩151.2b and ₩37.4b worth of receivables due within a year. So its liabilities total ₩6.15b more than the combination of its cash and short-term receivables.

Having regard to Bukwang Pharmaceutical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩406.6b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Bukwang Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Bukwang Pharmaceutical'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 Bukwang Pharmaceutical had a loss before interest and tax, and actually shrunk its revenue by 34%, to ₩126b. To be frank that doesn't bode well.

So How Risky Is Bukwang Pharmaceutical?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Bukwang Pharmaceutical had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩12b of cash and made a loss of ₩31b. While this does make the company a bit risky, it's important to remember it has net cash of ₩72.7b. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see 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. Case in point: We've spotted 1 warning sign for Bukwang Pharmaceutical you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.