Health Check: How Prudently Does MYUNGMOON PharmLtd (KRX:017180) Use 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. As with many other companies MYUNGMOON Pharm co.,Ltd (KRX:017180) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for MYUNGMOON PharmLtd

How Much Debt Does MYUNGMOON PharmLtd Carry?

As you can see below, MYUNGMOON PharmLtd had ₩89.3b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₩4.51b in cash, and so its net debt is ₩84.8b.

A Look At MYUNGMOON PharmLtd's Liabilities

The latest balance sheet data shows that MYUNGMOON PharmLtd had liabilities of ₩92.8b due within a year, and liabilities of ₩55.2b falling due after that. Offsetting this, it had ₩4.51b in cash and ₩40.6b in receivables that were due within 12 months. So its liabilities total ₩102.9b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩62.9b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, MYUNGMOON PharmLtd would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is MYUNGMOON PharmLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year MYUNGMOON PharmLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 8.1%, to ₩180b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months MYUNGMOON PharmLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩3.0b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩7.0b over the last twelve months. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that MYUNGMOON PharmLtd is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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.