Is GeneOne Life Science (KRX:011000) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, GeneOne Life Science, Inc. (KRX:011000) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for GeneOne Life Science

What Is GeneOne Life Science's Net Debt?

As you can see below, at the end of June 2024, GeneOne Life Science had ₩13.7b of debt, up from ₩1.12b a year ago. Click the image for more detail. However, it does have ₩4.50b in cash offsetting this, leading to net debt of about ₩9.17b.

How Healthy Is GeneOne Life Science's Balance Sheet?

We can see from the most recent balance sheet that GeneOne Life Science had liabilities of ₩24.2b falling due within a year, and liabilities of ₩21.0b due beyond that. Offsetting these obligations, it had cash of ₩4.50b as well as receivables valued at ₩7.48b due within 12 months. So its liabilities total ₩33.2b more than the combination of its cash and short-term receivables.

Given GeneOne Life Science has a market capitalization of ₩219.9b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since GeneOne Life Science 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 GeneOne Life Science wasn't profitable at an EBIT level, but managed to grow its revenue by 7.0%, to ₩41b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, GeneOne Life Science had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₩46b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩21b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with GeneOne Life Science (including 2 which are concerning) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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