Is Wooridul Pharmaceutical (KRX:004720) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Wooridul Pharmaceutical Limited (KRX:004720) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 Wooridul Pharmaceutical

What Is Wooridul Pharmaceutical's Net Debt?

As you can see below, at the end of December 2020, Wooridul Pharmaceutical had ₩19.8b of debt, up from ₩17.6b a year ago. Click the image for more detail. However, it does have ₩30.4b in cash offsetting this, leading to net cash of ₩10.6b.

How Strong Is Wooridul Pharmaceutical's Balance Sheet?

The latest balance sheet data shows that Wooridul Pharmaceutical had liabilities of ₩37.7b due within a year, and liabilities of ₩14.3b falling due after that. Offsetting this, it had ₩30.4b in cash and ₩21.4b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Wooridul Pharmaceutical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩137.5b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Wooridul Pharmaceutical also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Wooridul Pharmaceutical will need earnings to service that debt. 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 Wooridul Pharmaceutical's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Wooridul Pharmaceutical?

Although Wooridul Pharmaceutical had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₩9.2b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 2 warning signs for Wooridul 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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